The Bubble Economy: 2 Looks

Posted: April 24th, 2008 by: h2

Check these out, the first is a good overview of the current finance sector driven, government linked, bubble driven economic system we are finding ourselves increasingly mired in.

The first is from a recent article in Harper’s Magazine:

A financial bubble is a market aberration manufactured by government, finance, and industry, a shared speculative hallucination and then a crash, followed by depression. Bubbles were once very rare—one every hundred years or so was enough to motivate politicians, bearing the post-bubble ire of their newly destitute citizenry, to enact legislation that would prevent subsequent occurrences. After the dust settled from the 1720 crash of the South Sea Bubble, for instance, British Parliament passed the Bubble Act to forbid “raising or pretending to raise a transferable stock.” For a century this law did much to prevent the formation of new speculative swellings.

( I will use the familiar term “bubble” as a shorthand, but note that it confuses cause with effect. A better, if ungainly, descriptor would be “asset-price hyperinflation”—the huge spike in asset prices that results from a perverse self-reinforcing belief system, a fog that clouds the judgment of all but the most aware participants in the market. Asset hyperinflation starts at a certain stage of market development under just the right conditions. The bubble is the result of that financial madness, seen only when the fog rolls away.)

Nowadays we barely pause between such bouts of insanity. The dot-com crash of the early 2000s should have been followed by decades of soul-searching; instead, even before the old bubble had fully deflated, a new mania began to take hold on the foundation of our long-standing American faith that the wide expansion of home ownership can produce social harmony and national economic well-being. Spurred by the actions of the Federal Reserve, financed by exotic credit derivatives and debt securitiztion, an already massive real estate sales-and-marketing program expanded to include the desperate issuance of mortgages to the poor and feckless, compounding their troubles and ours.
Eric Janszen, Harper’s Magazine

The next article is by Joe Costello, and provides a nice historical review of our current economic situation. I didn’t want to let these two just drift away into the ethersphere, both have value in their own ways.

The Reagan Revolution proved adept in its prime goal of redistribution of wealth from 1980 until today. The Center on Budget and Policy Priorities shows in a 2007 study:

The top 1 percent of the population received 14 percent of the national after-tax income in 2004, nearly double its 7.5 percent share in 1979. (Each percentage point of after-tax income is equivalent to $71 billion in 2004 dollars.) In contrast, the middle fifth of the population, which has 20 times more people in it, received 15 percent of the national after-tax income in 2004, down from 16.5 percent in 1979. The bottom fifth received 4.9 percent of the income in 2004, down from 6.8 percent in 1979.

Yet, the most important cultural impact of the Reagan Revolution was the unleashing of the power of megacorporations. It can be said in the year 2008, in the entire history of the United States, the power of large corporations is as unfettered as any time in American history, and that is saying something.
The question becomes, is the world entering a new era, one where the doctrine of unlimited growth has met its limits? The questioning of unlimited growth is not new to political economy; it has been around since almost the inception, beginning most famously, or as most of economic proselytizers of unlimited growth would say most infamously with the thinking of Thomas Malthus. An Englishman born 10 years before the 1776 publication of Scotsman Adam Smith’s seminal The Wealth of Nations, Malthus uncovered a fundamental rule of biological science that became essential to Darwin’s thinking but has been disowned by our unlimited growth scientists of economics.
Joe Costello

Comments are closed.