Question by mike_876875: How do we know there are not, as yet uncovered, other ‘bubbles’ lurking out there?
My question might be naive so please respond with that in mind that I know it might be. And meaningful answers, please, no one liners.
I remember in 2004 graduating students at my university were having a hard time finding jobs because the internet bubble had just burst and the economy was in a downturn. By the time I graduated things improved somewhat and I found something. Now again 5 years later things are down after the burst of the ‘mortgage’ bubble (securitization of mortgages, lenient housing loan legislation) and people are again jobless.
-How do we know there are not other bubbles lurking out there or yet to form, that will surface at some point, masked by the illusion of economic growth.
-Is this the normal cyclical progression of a capitalistic economy, that is it reaches a bubble, bursts, then hits a bottom every 5 years and people lose jobs? That is lousy, if that’s how it is supposed to work.
-In other words, is there a bubble at the end of every growth cycle? I mean it is almost like it is one thing or another – first an internet bubble, then a mortgage bubble.
Thanks.
How can one be knowledgeable enough (books I can read?) so as not to be effected as much (worst, be buffeted around) by these forces, with or without their knowledge? (e.g. be a business owner versus a corporate employee, sign up for recession insurance 🙂 ).
Best answer:
Answer by willwork4food89
There are certainly bubbles left to come, but you raise a fine issue with the “normal cyclical progression of a capitalistic economy”.
The real answer is that we have no clue what capitalism does. We are writing the book as we go along. Marx believes it’s going to collapse, and socialism will occur. Is that where we are today? Who knows? That’s the more pessimistic view.
Others believe that capitalism is a permanent, 3 steps forward, 1 step back kind of economy. Every once in a while we take a few extra steps back, but in the long run we will prosper. Will that happen indefinitely? Who knows? That’s the more optimistic view.
The real key to understanding our situation is to realize that we have no idea what will happen. It is currently accepted that capitalism “naturally progresses” from a manufacturing economy to a service based economy. Why? Because that’s what happened to the US and Europe. However, our collapses have been in these highly volatile service based industries. Once again, who knows?
The bubbles happen because people get overly excited and there is a lot of activity that cannot be sustained. That happens in free market economics. Will the bubbles be less severe if the government sets out stricter regulations? Maybe. Will the bubbles be worse and worse with the extent of globalization? You can argue that.
I study economics, and I like to sit back and observe things as they come. Like I said, the key to understanding everything is that economists are just as clueless as everyone else. It’s hard to write a theory and implement it when we have little to no background to go on.
To answer your question, if we (the US) continue to go down the path that we’ve been going (NAFTA, free market, etc) we will certainly see more bubbles and recessions and depressions in the future.
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