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View Diary: Republicans undiscover fire (246 comments)

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  •  Only with a meaningless definition. (0+ / 0-)

    Asset bubbles are caused by investment behavior, over which the government policy in a relatively free-market country like the United States has little influence.  These are typically the results of new technologies, products, resources, etc.  Because they're so profitable, they draw a lot of private capital.  But because no one has perfect information on the exact profitability and characteristics of the market, the investment tends to eventually become overinvestment: a bubble which then collapses when the market realities become clear.  Now, the reason that it's so hard for governments to prevent that sort of event is that they're so unpredictable: when bubbles are first forming, it's hard to tell just how big they are, because no one's sure what the market can actually sustain.  Right now, even once you take all the political posturing out of the discussion, there's still not a consensus on where the US housing market will level out in the end.

    Trying to outright prevent that from happening is not a position that capitalists will take, because it requires some very heavy-handed government control of the economy which causes other, worse problems (though they're generally down to the same fundamental principles that cause asset bubbles, they just manifest in different ways).  If you don't like capitalism, then such things may well seem like reasonable policies to you.  But in that case it's not really meaningful to refer to them as "Republican" policies, because the Democratic party isn't really on your side, either.

    It's worth mentioning one of the exceptions to the generalization, too.  One of the very few times that the US government has had policies strong enough to prevent that sort of privately-driven bubble development was WW2.  In that case, our military spending was just so phenomenally huge that it basically crowded out almost all of the of the private investments behind such normal operations of the economy.  It's an exception that proves the rule, though, because what happened instead is that you saw a government-created investment bubble (in military industries).  Once market conditions changed (with the end of the war), the military industry was no longer profitable on that same scale, the bubble burst, and we had a recession while the economy reorganized.

    Since you've broken up your posts, I'll deal with the other stuff separately.  But I think that's enough (for now) to clarify this aspect of my argument.

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