Bookstaber: The articles on art as an investment class always rub me the wrong way. An asset class has to have a real economic rationale. When people talk about getting these tangibles that are not inherently income producing, I always think they are playing into some sort of short-term bubble.

Worth: Speaking of bubbles, do you think the U.S. recovery since 2001 been driven by credit rather than actual growth?

Glassman: It’s always that way. Easy credit was what the Fed was supposed to provide, and it helped restore psychology and turn the economy. The economy is performing well, except for housing, and that’s because prices got out of line.

The economy is more resilient than people expect. When the stock market crashed in ’87, half the world thought civilization was ending. Think how you felt when the terrorists struck on 9/11. But we watched how the economy absorbed these shocks. What bin Laden doesn’t realize is it’s not about destroying property, it’s about destroying ideas—the idea of how the economy is based on the energy of human beings, and giving them the freedom to take advantage of that energy.

Worth: But isn’t there a better way to minimize economic swings than Greenspan’s approach of waiting until after a crash to dump a lot of liquidity into the markets?

Glassman: That’s a very financial markets perspective. If you look at how the Fed managed the real economy, it performed quite well. And prices in stocks are back to where were they were—what we once called a bubble. But we don’t call it that anymore; valuations have come back in line.

Worth: Will we ever learn from bubbles?

Berman: It’s funny how people always justify the bubble that they’re invested in. The reason they used to justify the technology boom was the Internet. Some people said the real estate market was different this time because there is a limited stock of housing. What happened? Has all the land been cut in half now?

Glassman: Think of a baseball team that has won 10 games in a row. What are the chances it will win the 11th game? The truth is a huge amount of money is made by investing in momentum. And overall, momentum trading has positive returns. So there is a very good reason why there will always be bubbles.

Photo Illustrations by C. J. Burton.

Additional Information
 Top Risks to Your Wealth in 2007: The Economy
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