July 29, 2009

Blowing Bubbles

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How do we pop financial bubbles before they get out of hand?  Alex Tabarrok surveys the literature and comes away pessimistic that it can be done:

Bubbles occur even as uncertainty about the fundamental value diminishes.  We also know that once a bubble starts it’s difficult to stop.  Circuit breakers and brokerage fees (transaction taxes), for example, don’t do much to stop bubbles….Investor education doesn’t help (for example telling participants about previous bubbles doesn’t help). Even increasing interest rates doesn’t do much to stop a bubble already in progress and may increase volatility on net.

So what’s the answer?  Once a bubble gets going, maybe there isn’t one.  However, some lab experiments suggest that having lots of cash sloshing around is instrumental in getting bubbles going in the first place:

[These] experiments are consistent with the Fed having a significant role in bubble inflation (a theory I have not pushed).  In other words, rather than identifying and popping bubbles already on the rise, not blowing bubbles in the first place may be easier and more productive.

That would be a start, anyway.  More research, please.

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From the desk of Mother Jones CEO, Monika Bauerlein...

Newsrooms can be funded in many ways. One of the most controversial (and volatile) ways is by a for-profit corporation or a billionaire owner. We see it across the headlines on a weekly basis: the claw backs in public media, the gutting of The Washington Post, the bending over backwards to appeal to Trump and his allies.

But not here.

When Mother Jones first started publishing 50 years ago, our founders made a critical decision: to be a reader-supported nonprofit. They knew that no corporate owner would be interested in a muckraking newsroom; they also knew that no muckraking newsroom would be interested in following the agenda of a corporate owner.

And so, we’ve been reader-funded for half a century. We rely on contributions from our readers—readers like you—whether it’s $50, or $15 a month, or whatever fits your budget. People give what they can, and every donation makes a difference for our newsroom, which has grown tremendously—in size and reach and renown—since its inception in 1976.

You may be wondering: What does it take to publish an investigation? And what does my donation actually fund? The answers are one and the same: It takes people, resources, and time. And that’s what your donation funds directly.

Every donation Mother Jones receives from readers fortifies our newsroom, whether we’re covering underreported scandals out of Washington, DC, or the most important news of the day. And right now, each donation will be doubled because of our $50,000 match. So when you make a donation—$5, $50, any amount—it’ll go twice as far.

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