A hard landing is probably now too late to prevent

The best way to attract attention is to predict disaster. The second best way is to predict miraculous improvements, saying 'It’s boom, boom all the way'. It is less popular to try to make distinctions. Nevertheless here goes.

There is no need to decry the importance of IT and associated technological developments, even though there can be more than one opinion on whether they are improving the quality of life. But we must escape from the besetting sin of temporal parochialism - the belief that what is happening now is unique in the history of mankind. In the 200 or more years since the first industrial revolution capitalism has thrived on technological breakthroughs, whether the steam engine, electricity, radio and television or the mass production of automobiles.

Indeed the IT revolution can best be regarded as another milestone in the improvements of communications. Indeed it is probably less importance from the point of view of globalisation (that is making the world one economy) than the transatlantic cable of the mid 19th century. From a more general point of view, the breakthrough that the world experienced between say 1890 and 1910 - which was covered by Proust's great novel Remembrance of Things Past - was greater than anything experienced today. At the beginning of the period, transport away from the railheads was by horse. At the end aircraft were flying overhead and telephones were in use. Most of the rest of the 20th century was occupied by the spread of these developments to ordinary households.

But there is no reason to believe that the business cycle, which has been with capitalism from the beginning, has come to an end. Nor has the series of bubbles. We had the Dutch tulip boom in the 17th century, the English South Sea Bubble in the 18th, the railway manias of the 19th century and the bubble in IT stocks just now.

There are signs of fundamental improvements in two economic variables. It now looks as if the Anglo Saxon economies can be run at a lower rate of unemployment, without setting off runaway inflation, than they could in the 1970s, 80s, and early 90s. There are also signs of an underlying increase in productivity. But both in productivity and in sustainable unemployment, we are mainly getting back towards what seemed natural in the first two or three post war decades. Today’s centre-left governments are here reaping the benefits of unpopular actions taken by right-wing governments such as though of Reagan and Thatcher to break trade union power and other restrictive practices in the 1980s.

But the boom in stocks - where technology sector now accounts for a third pf the total value - seems to me to go much further than can be justified by these fundamentals. The similarities with the 1920s - when again there was no shortage of justifications - are all too suggestive. Even more worrying is that so many market participants have stopped even looking at fundamental ratios and are buying stock in the hope of being able to pass them onto someone else - there is always a bigger fool. What worries me most as a general economic commentator is that analysts are making assumptions about equity earnings, which if extended for very long would lead to profits consuming the whole of the national income.

Not nearly enough attention has been given to the almost unpredentedly high private sector deficit in the US, which depends on the wealth effect of a rising stock market and buoyant real estate prices. When these wealth effects no longer operate there could be the father and mother of a hard landing, which is probably now too late to prevent.