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Speculative bubbles raise prices but not value. They only benefit the speculators not the owners of buyers. When the bubbles burst the misallocated resources bring harm to everyone.
Speculative bubbles raise prices but not value. They only benefit the speculators not the owners of buyers. When the bubbles burst the misallocated resources bring harm to everyone.
But how do we know that the net value after a bubble bursts is not higher than it would be without a bubble at all? This is how markets work. There are peaks and valleys, however the low point in the fall is more often than not higher than it would be otherwise.
They give a great portion of the population buying power. Believe it or not. The real estate bubble of the mid 2000s was economic growth. Construction went up. Unemployment decreased. What more does there need to be to indicate economic growth?
For the same reason that there is a hangover after a binge. When the bubble is over, the economy reverts to its previous state, yet there are always painful economic consequences that exceed the benefits of the bubble.
PS- We are seeing that now from the mortgage bubble. Are you better off now than you were 12 years ago?
They give a great portion of the population buying power. Believe it or not. The real estate bubble of the mid 2000s was economic growth. Construction went up. Unemployment decreased. What more does there need to be to indicate economic growth?
When they produce unsustainable debt.... What we are seeing/have seen since 2008 is the tipping point....
But how do we know that the net value after a bubble bursts is not higher than it would be without a bubble at all? This is how markets work. There are peaks and valleys, however the low point in the fall is more often than not higher than it would be otherwise.
I just don't see why net value after the bubble matters. The misallocation of resources occurs in the overhang -- too many real estate agents, too many appraisers, too many homebuilders, too many bankers, etc., whose time and resources could've been allocated to other activities; activities which were sustainable in the long term.
In other words, a bubble can be bad simply because of the choices it "forces" people to make in order to stay solvent. These choices can have long term consequences because of the temporary, non-sustainable nature of the "bubble."
I'm not real clear on how these rather abstract, unquantifiable costs to the labor markets and productivity would show up as "net value."
They give a great portion of the population buying power. Believe it or not. The real estate bubble of the mid 2000s was economic growth. Construction went up. Unemployment decreased. What more does there need to be to indicate economic growth?
Because it was a credit produced bubble. So people borrowed money, built/bought things, then couldn't pay when things became due. How is that growth? Sounds like a net loss to me.
They give a great portion of the population buying power. Believe it or not. The real estate bubble of the mid 2000s was economic growth. Construction went up. Unemployment decreased. What more does there need to be to indicate economic growth?
It just needs to be sustainable over time.
Stability brings complacency, which brings risky debt arrangements, which brings instability, which brings caution, which causes less risky debt arrangements, which brings stability...
you want to minimize these psychological swings in the market, not maximize them. This is Counter-cyclical policy.
I just don't see why net value after the bubble matters. The misallocation of resources occurs in the overhang -- too many real estate agents, too many appraisers, too many homebuilders, too many bankers, etc., whose time and resources could've been allocated to other activities; activities which were sustainable in the long term.
In other words, a bubble can be bad simply because of the choices it "forces" people to make in order to stay solvent. These choices can have long term consequences because of the temporary, non-sustainable nature of the "bubble."
I'm not real clear on how these rather abstract, unquantifiable costs to the labor markets and productivity would show up as "net value."
That is very true, however simply to propose an alternative point of view, if net economic growth is higher in say a 30 year time period with bubbles than without, is it worth the risk of not having a smooth growth curve?
I would tend to want net growth to be higher at the expense of smoothness, however that is looking at the world from a macro level, not the micro level you have mentioned.
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