May 23, 2010

The Fatal Bubble

Justin Katz

What defines an economic bubble? There are probably technical answers to that question, perhaps even involving percentages and such, but the basic inference is an apparent growth that's really just full of air, deceiving people into behaving as if the cause of the increase is actually something of substance when, in reality, it could dissipate immediately upon exposure to the atmosphere.

In a recent letter to the Providence Journal, Philip Overton, of Westerly, expresses something that has likely been nagging at a great many of us, in recent months and years:

There is no fiscal integrity in our government right now and this is the next possible great bubble building.

The substance in which we've been deceived to believing is that the government can absorb the vicissitudes of the economy. We're relying more and more on government not only to fill the craters that other bubbles have left when they've popped, not only to fill other bubbles (sometimes in the form of doomed companies), but also to conduct matters of economy and even personal well-being. It can't last.

The only question is what happens when the government bubble bursts. A free-for-all of wealth grabbing and recriminations seems likely, and let's not forget that there are those on the global playground relentless in the eye that they keep on our every step, in the hopes that the lone superpower will falter.

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A bubble is systemic malinvestment spurred by perverted incentives.

The progressive story that this kind of systemic malinvestment could spontaneously form due to "animal spirits" without an external alignment force in the form of government is about as likely as 1000 monkeys on typewriters reproducing Keynes' General Theory. Hayek and other Austrian economists correctly recognized that prices are not only indicators, they send signals. Prices perverted by government interventionism will therefore send perverted investment signals, creating a bubble that must eventually break.

Posted by: Dan at May 23, 2010 2:39 PM

Notice how good of a job that vaulted multi-billion dollar oil company, BP, is doing at cleaning up the mess they made! So much for Dan and his libertarian "solutions".

Republicans and conservatives are now starting to yell for Obama and the government to "do something", now that it becomes painfully obvious that "the free market" will ALWAYS profitize gains and socialize losses. Yes, we the taxpayers will end up paying the off-the-charts cost of the unfettered deregulation left over from the Bush years.

Don't we wish that people and corporations had a modicum of responsibility and that the government did not have to bail them all out when they get in trouble? Well, I guess not......since the GOP tried to fight regulation of Wall Street even NOW........

They want more of the same.....

Oh, and Justin - the bubbles that we saw lately are from the dot-com, the real estate and the banking well as one or two from the oil biz (financial sector really). Most of the government "bubble" is from those wars you so support and then from having to save us from the wreckage wrought upon us by "free market" cronyism.

If you think RI is bad, maybe you should get inside one of those massive corporations....then you will see irresponsibility that makes your head spin!

Posted by: Stuart at May 23, 2010 5:14 PM

I will not be responding to Stuart the long-winded agitator's anecdotal nonsense. Nor will I be reading more than the first paragraph of his post since I could already tell after reading it (accidentally) that it was not even attempting to address the topic at hand or the point I had made.

Posted by: Dan at May 23, 2010 6:00 PM

Stuey, Obama's non-response to this slow motion ecological catastrophe in the Gulf will haunt him to a landslide defeat in 2012. We all knew Obama was not a leader of any kind and merely a wimpish celebrity apprentice in the White House but his complete disengagement and disinterest on this continuing disaster (month long and counting) that now visits out southern shores has been shocking and will nail his political coffin shut. The hands off policy of this government vis-a-vis this oil well leak is beyond comprehension. If you loony libs think you're scoring points with anyone by making this spill a referendum on "doz evil corporations" you are sadly mistaken. This disaster is a referendum on this President and his government and both are is failing miserably.
Isn't it interesting how we don't hear a peep from the greenies right now. Where is Al Gore?
Frauds all!

Posted by: Tim at May 23, 2010 6:58 PM

"Prices perverted by government interventionism will therefore send perverted investment signals"

And that's exactly what triggered the housing bubble and subsequent economic collapse. Gov't allowed (sometimes ordered) banks to make loans to unqualified home buyers. More importantly, the gov't guaranteed those loans, thereby lifting any risk that might have accrued to the banks for making bad loans. Naturally, the banks went wild; what did they have to lose? All that risk had been transferred to the American taxpayers, thanks to politicians like Barney "dining table" Frank.

This doesn't exonerate secondarily guilty parties - security rating agencies, for example, who put a stamp of approval on the investment instruments created from all of those bad mortgages.

But government interventionism (in this case, do-good-ism) was the primary, triggering cause of the housing collapse. Without it, the collapse would not have happened.

Posted by: Monique at May 23, 2010 7:28 PM

Don't forget this, Tim:

BP and its employees have given more than $3.5 million to federal candidates over the past 20 years, with the largest chunk of their money going to Obama, according to the Center for Responsive Politics.
Posted by: Justin Katz at May 23, 2010 7:41 PM

Hah Hah,

Now you not only expect Obama to walk on water, he is supposed to scuba dive and solve a problem for a profit making corporation!

See? As I said, your "conservative" values are about as deep as the next dollar you think you can get the government to give to you or your masters, the big corporations. Last time I looked, the US Government did not have a mandate to fix problems which it knows absolutely nothing about....I would think real conservatives would tell the government to stand back and let the bull run...after all, how can the "free market" not solve every problem known to man......???

Posted by: Stuart at May 23, 2010 8:13 PM

Wow what a surprise Justin. The White House celebrity apprentice is in bed with big oil. Obama is a prostitute. He'll bed anyone as long as they bring their checkbook. The stain on his dress is crude oil belching up from the Gulf and that stain is never going away for Barack Obama.

Stuey, only lefties think Obama walks on water. The average citizen who voted for him is currently having a massive case of buyers remorse. Those of us who never voted for him have always seen Obama for who he really is, a wimpish anti-American leftist whose only real skillset is teleprompter usage.
Obama's complete disinterest and inaction on a month old, continuous and growing oil leak and the ecological disaster it is bringing to the Gulf and its' shores will stain his one term Presidency forever. Mr. Teleprompter is not going to spin his way out of this and his embarrassing lot of media lap dogs will not be able to ignore or sanitize the gobs of crude now coming onto our shores.
This oil spill and Obama have one thing in common. Both are disasters of epic porportion.

Posted by: Tim at May 24, 2010 7:00 AM
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