That’s what Arnold Kling and Nick Schulz argue in this NRO piece today.
It requires sustained government intervention in the normal processes of the market to create a serious “bubble” — that is, an economy-wide overinvestment in something. There are always going to be some individuals who get too optimistic about X and put too much money into it. They’re balanced out by others who are pessimistic and want to get their money out. Some win, some lose, but there are no economy-wide effects.
But with federal intervention, it’s quite possible to get almost everyone to stampede in the same direction and create an enormous bubble. The housing bubble was a good example. We wouldn’t have had the huge surge of real estate buying without the federal government pushing home ownership through low interest rates and government sponsored entities eager to purchase questionable mortgages.
Have the politicians learned the lesson? Not at all. Kling and Schulz say that the next bubble will be “green jobs.”
