So I have a question that was posed to me recently, that I want to pose to DKos as well: are savings-glut induced bubbles the inevitable result of the success of supply side economics?
More and more I see Republicans using the concept of a savings glut to explain away the housing bubble. The idea here is that there was a whole pile of money looking for somewhere to invest- which created a demand for investments, which drove the prices up on those investments. Once prices started going consistently up, investors naturally assumed they would always continue to go up, and we got a bubble.
Now, let me say up front that I don't believe this explanation. If you ask me what the cause of the bubble was, I'd respond easy credit from the central banks, lax regulation, and fraud (especially on the part of S&P and Moodys, in giving false triple-A ratings on CDOs that were no where near that safe, in return for consulting money). But leave that aside for the moment- assume that the Republican story is true, that a savings glut caused the bubble.
Isn't that exactly what supply side economics tried to do? The idea of supply side economics, as it was explained to me, was that if we put a lot of money in the hands of the investor class (aka rich people), they would invest it- naturally, in building more plants and hiring more people and improving the economy for everyone. Except that what seems to have happened once the investor class got a large chunk of money is that, instead of investing it in economically useful things, like factories, they invested it first into a large collection of badly thought out web sites, and then in mis-rated junk bonds requiring federal bailouts.
There is a disconnect somewhere- either St. Ronnie I was wrong, and supply side economics doesn't work, or the defenders of King George II are wrong, and the bubble wasn't caused by a savings glut.
Inquiring minds want to know.