A BUOYANT and complacent stock market is worrying Richard H. Thaler, the University of Chicago professor who this week won the Nobel Prize in economics.

“We seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping,” Thaler said, speaking by phone on Bloomberg TV. “I admit to not understanding it.”

The S&P 500 index has been reaching repeated records since President Donald Trump’s election last November amid steady growth in the US economy and labour market, as well as expectations for lower taxes, though policy action in Washington has been limited. Thaler, who has made a career of studying irrational and temptation-driven actions among economic actors and won the Nobel for such contributions to behavioural economics, expressed misgivings about the low volatility and continued optimism among investors.

“We seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping,” Thaler said

“I don’t know about you, but I’m nervous, and it seems like when investors are nervous, they’re prone to being spooked,” Thaler said, “Nothing seems to spook the market” and if the gains are based on tax-reform expectations, “surely investors should have lost confidence that that was going to happen.”

The economist said that he didn’t know “where anyone would get confidence” that tax reform is going to happen.

“The Republican leadership does not seem to be interested in anything remotely bipartisan, and they need unanimity within their caucus, which they don’t have,” Thaler said. “And the president’s strategy of systematically insulting the votes he needs doesn’t seem to be optimizing anything I can think of, but maybe he’s a deeper thinker than me.”

That followed another jab earlier Tuesday on Bloomberg Radio, when Thaler said of Trump: “His ratio of certitude to knowledge is nearing record highs.”

Thaler also took a swipe at Brexit, saying that Britain’s vote last year to leave the European Union was based on disenchantment.

“I don’t think that the leave votes were based on any implicit spreadsheet running in people’s heads — it was just like, ‘I’m angry, and I’m voting no,’” he told Bloomberg TV’s Vonnie Quinn and Mark Barton. Of the Brexit process, he said: “It doesn’t seem to be headed in any productive direction.”

—Bloomberg/The Washington Post Service

Published in Dawn, The Business and Finance Weekly, October 16th, 2017