William Wordsworth had it absolutely right.  Consider, for example, the case of Alan Greenspan, the highly respected chairman of the Federal Reserve Board.

        When Mr. Greenspan was a tyke, his mom, a wonderful lady but strict, peremptorily denied her son intimate contact with bubble gum.  That made Alan a much tidier little fellow and much more becoming to behold.  But it also was to have grave and, for the nation, momentous consequence years later.

        For absent the normal childhood experience of chewing bubble gum Mr. Greenspan, after successfully negotiating the trying passage of adolescence, reached adulthood bereft of any knowledge of bubbles.
This has proved both a blessing and an impediment.  A blessing in that he has not rushed to prick bubbles where none existed and thus has spared the country, the economy and investors the pain of unnecessary credit tightenings.  An impediment in that he can't see a bubble when it's resting on the tip of his nose.

        He all but confessed to this visual limitation in his testimony last Thursday before Congress.  Alluding to the great bull market of the 'Nineties, he sighed that it was "difficult to assess" whether "an unstable bubble" had "developed in its wake."

        We don't want to fuss over verbal nuance or try to deconstruct Mr. Greenspan's unfailingly subtle syntax.  But that phrase "unstable bubble" rather underscores his unfamiliarity with the phemonenon by implying there's such a thing as a "stable bubble".

        Besides, he insisted, most asset bubbles can be perceived only "after the fact." To spot a bubble in advance "requires a judgement that humdreds of thousands of informed investors have it all wrong."

        Well, yes. The chairman however, seeminly finds such a possibility inconceivable. Yet, in virtually the same breath- certainly the same testimony- he contends it's perfectly okay to make a pre-emptive strike against future inflationary pressures in the economy. In other words, it's okay to make a judgement that thousands of informed companies and millions of informed consumers have it all wrong.

        Why is it too much.of a stretch to assume that the price of stocks has reached inflated levels, but not too much of a stretch to assume that the price of products and labor may reach inflated levels?  Beats us - better ask Mr. Greenspan.

        But perhaps you needn't bother - he has already more or less supplied the answer: Inflation in the economy that doesn't yet exist is easy to spot; a financial-asset bubble that well may exist is too tough to spot.

        Let us, then, and purely out of civic impulse, try to help repair the lacuna in Mr. G's vision.  Via a kind of financial Braille, perhaps we can provide him graphic evidence of a bubble.

        Behold that chart that adorns this page.  It comes to us from Ed Yardeni, Deutsche Bank's shrewd surveyor of the economy.  What it shows is a model of stock-market valuation that is based on the ratio of the S&P 500 Index to "fair value"; to determine fair value, divide the consensus estimate for operating earnings of the S&P over the next 12 months by the yield on the 10-year Treasury bond.
 

        Which may be why he pays it no mind.