When the dot-com bubble burst in 2001 and the economy entered a recession, it wasn’t long before a new bubble started to grow and fill the void—money started pouring into the housing sector. That, somewhat predictably, burst even more spectacularly than the Internet one. So, what’s next? There’s a pretty strong argument that yet another bubble is being primed. What it will be is still unclear (could it be infrastructure or alternative energies?). But like it or not, the bubble cycle could well be finding a permanent place in our economy—a kind of vicious cycle. The most complete, and interesting, argument appeared in Harper’s earlier this year (it is worth reading in its entirety).
There’s also research that suggests this is simply human nature. In a controlled study, outlined here, people were given money and shares to trade, and 90 percent of the time, ended up creating bubbles. “Again and again, in experiment after experiment, the trading price runs up way above fundamental value. Then… it crashes,” explains the Atlantic article. So, are we set to repeat the same mistakes? Or will this downturn be deep and long enough to convince us of the error of our ways?
Update: more on bubbles in the latest Atlantic (the Henry Blodget piece that Sisyphus points out)