Most of the rationalisations for the Wall Street boom were foreshadowed, sometimes word for word, in the run up to the 1929 crash.

Let me start with "an executive summary."The "new paradigm" is another name for what used to be called, with justifiable cynicism, the Goldilocks scenario.

It has three elements. First, it is said, the US economy can now be run with a much lower level of unemployment than before without generating rising inflation. Secondly it is suggested that there has been a pronounced upward shift in the underlying growth rate. And thirdly Wall Street is supposed to soar to ever fresh heights for the foreseeable future.

The first assertion - that the US can now be run with a tighter labour market than previously supposed without inflation taking off - is probably justified. The second - about a higher underlying growth rate - is more dubious. The third - about Wall Street's ability to reach the stratosphere - is nonsense on stilts.

The Fed chairman Alan Greenspan has just reminded us how the Fed's forecasts have chronically overpredicted inflation and under predicted real growth. Unemployment has fallen to lows which nearly all models predicted would be associated with rising wage costs and accelerating inflation. Yet wage inflation has never seemed more subdued.

Even this most plausible part of the paradigm can be be exaggerated. For there have been some favourable once-for-all influences on the inflation rate arising from falling commodity and oil prices and a rising dollar. These may give a misleading idea about quite how far the sustainable rate of unemployment has fallen.

We shall soon find out if oil and commodity prices continue their recovery or if the dollar experiences a setback. Another abnormality is the strength of the investment boom which has produced the rare coincidence of a tight labour market and a large margin of excess capacity.It is in any case nonsense to conclude that fundamental economic rules need rewriting. Those who say this do not know what these rules are. The estimates made of - forgive the jargon - the Non Accelerating Inflation Rate of Unemployment or NAIRU are simply rough and ready guesses which, even if valid, apply only to limited historical periods.

There is nothing in basic theory to expect the NAIRU to be unchanging. Indeed, Milton Friedman who was one of the inventors of the idea, has always refused to guess its level. As Greenspan said in the same address "neither the fundamental laws of economics, nor of human nature on which they are based, has changed or is likely to change."

The validity of the part of the new paradigm concerned with underlying growth depends somewhat on what you mean by "underlying". Greenspan sings the praises of the Information Technology and related revolutions. But he then points out that they are less important than revolutions around the turn of the last century, which saw the introduction of the automobile, the aircraft, the telephone and the beginnings of radio technology.

Charles Jonscher, who is an acknowledged IT expert, remarks on the lack of evidence that IT has increased US productivity growth. (Who Are We in the Digital Age?, Bantam Press) Indeed the average annual growth of business output per hour in the post-1992 business cycle has been less than in 1954-75.

Greenspan himself believes that the new technologies have indeed brought an unexpected increase in output over the last few years. But considers it is invalid to project this increase into the future. For we do not have the knowledge to distinguish between a once-for-all jump and a change in long term term trend.

Now I come to Wall Street itself. Even if it does not crash and fluctuates around present levels, the US boom is highly vulnerable. For American consumers - the much vaunted saviours of the world economy - have stopped saving and have been running down their financial balances. This cannot go on for ever. It only appears sustainable on the basis of a continuing rise in equity and other asset prices, which is creating the illusion of wealth.

Apostles of the new paradigm sometimes argue that income is understated because it excludes capital gains. But this is almost entirely circular. For the capital gains are only there because consumers think that they are wealthy enough to run down their financial assets and boost consumption, and thereby business turnover and profits.

Surveys of equity analysts show expectations of 13 to 14 per cent annual rises in corporate earnings. percentage rates. But if these represent real profits and not just a resumption of inflation, they are absurd. For the average annual growth of Nominal GDP is barely 5 per cent. And if any component of GDP continues to growth faster than the total, compound interest alone suggests that it would eventually almost swallow almost the the whole of GDP.

But to me most impressive of all are the comparisons with the 1920s. Just as there are optimists today who talk about the Dow Jones rising from 11,000 to 20,000 or 30,000, their forebears in the 1920s spoke about a new era of everlasting prosperity. The rise in the Dow Jones between 1924 and 1929 was very similar to the rise from 1994 to date.

There is a recent story that a man in a dark suit was given a lift by a truck driver and asked him if he ever invested in stocks. The reply was that not only did he do so that he had been able to buy a tropical island the size of a country, leaving the man in the suit to leave the truck' tail between his legs. This is the modern equivalent of the taxi drivers making fortunes in the 1920s and driving taxis only as a hobby or for pocket money.

Of course, In talking about 1929, it is important to avoid the error of identifying that Crash with the Great Depression. That came rather later and was only partly the result of the 1929 Wall Street crash. That crash was only the beginning. It was followed by a moderate recovery which then gave way to further and much larger downturns which reached a bottom only in 1933.

One hopes that the Fed has learned enough to prevent a 1929-style crash being followed by a 1930's style contraction in the money supply and economic activity. But it is doubtful if it can avoid at least some check to growth or even outright recession such circumstances. Some Wall Street bulls point to falling bond yields - until a few weeks ago - which have been associated with rising PE ratios over the last 20 years - they are supposed to reduce the rate at which future profits are discounted. Andrew Smithers has unfortunately spoiled the party by pointing out that in the earlier bull market in the two decades up to 1968, associated with accelerating inflation, there was an even stronger correlation between rising bond yields and higher PE ratios.

This is the first time that I recall expressing a view on stock markets anywhere. But if the pundits in any field seem to be in fantasy land one must say so. This applies whether they are military pundits making unrealistic claims for the results of bombing or stock market gurus projecting what Tim Congdon rightly calls "a silly boom" for ever.

No one knows know whether the break will come within one week, month, one year, or five years. We must hope and pray that any Wall Street crash after some combination of the Euro zone, Japan and the emerging countries have got their acts together and can take over from the US the task of being the locomotive for world expansion. Meanwhile let us recall the remark of that stock market authority, Bernard Baruch, that no one ever lost his shirt from taking a profit.

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