Friday, August 23, 2013

Krugman on the Prevalence of Bubbles

Doctor K really is like the Cassandra of classical myth: he tells the truth and is ignored. Read the article to find the answer to the question below.

This latest financial turmoil raises a broader question: Why have we been having so many bubbles?

For it’s now clear that the flood of money into emerging markets — which briefly drove Brazil’s currency up by almost 40 percent, a rise that has now been completely reversed — was yet another in the long list of financial bubbles over the past generation. There was the housing bubble, of course. But before that there was the dot-com bubble; before that the Asian bubble of the mid-1990s; before that the commercial real estate bubble of the 1980s. That last bubble, by the way, imposed a huge cost on taxpayers, who had to bail out failed savings-and-loan institutions.

The thing is, it wasn’t always thus. The ’50s, the ’60s, even the troubled ’70s, weren’t nearly as bubble-prone. So what changed?

No comments: