If you believe in economic bubbles, please define what one is.
When a huge amount of people buy something, not to keep, but to sell to the next guy.
It is irrelevant one way or the other.
It’s irrelevant to cycle theory what a business cycle is?
when people’s actions are guided by incentives that do not reflect the underlying scarcity/availability/flexibility of various resources and dimensions.
You mean when the market is not in equilibrium?
A general, unsustainable, expansion in spending which occurs laterally across all stages of production induced by an expansion of credit or money. The expansion occurs across all stages, from stages closest to production to stages furthest. Resources and labor are bid up as nothing is set aside for savings. IE, various stages of production are not slowing their expansions to make way for various other stages of production. This causes the general rise in prices which can help promote a state of ephoria. IE the 90’s, and 2000-2007.
You asked for the boom, so I won’t bother explaining the bust.
“You mean when the market is not in equilibrium?”
No more like when the slope of the “market” is tending away from equilibrium, rather than toward it as it should be.
It’s a theory of how the price system works. You can make up your own definition of real events and call them bubbles, cycles, unicorns or any other title you fancy. It matters not.
This.
There are consumption goods, and there are production goods. Consumption goods are valued for their own sake, and may be thought of as “0th-order capital.” Production goods are valued because they can ultimately be transformed into consumption goods; we refer to them as “higher-order” or “lower-order” depending on how far away they are from consumption goods.
However, there is one good that falls outside this dichotomy: money. Person A values it because they predict that it will be valued by Person B, who does so because they predict that it will be valued by Person C… Unlike with other goods, this search for the source of money’s value never ends; money is infinitely far away from any consumption goods.
Of course, the reason why money comes to be valued in the first place is because it serves as an intermediary to get around the double-coincidence-of-wants problem. Eventually, people come to attribute value to money in the same way that two people told to meet in Manhattan on a certain day will head for Grand Central Station at noon (to use Thomas Schelling’s example).
Therefore, strictly speaking*, money is an example of an economic bubble. This suggests that economic bubbles (e.g., housing, tech stocks, tulips, beanie-babies) may be thought of as a form of “money”: a bubble is what happens when ordinary goods acquire “money-type value” (a.k.a. ∞th-order value, which ultimately derives from the extent to which knowledge of consumers’ preferences is not shared). But because money-type value is not anchored to the valuations of consumers, there is nothing to stop it from fluctuating, particularly if the supply of the good is elastic (in which case, for example, you end up with people building a lot of houses that nobody ever lives in, diverting scarce resources from better uses).
*“Bubble” may carry a connotation of short-term instability; I’m going by Smiling Dave’s definition.
Thanks for the agreement, Zavoi. Didn’t know it was that profound.
Where can I read more about this analysis of money? Keep in mind that the internet has gotten me hooked on easy and short, but if it must be some thick Hayek type book with big words, so be it. In that case page numbers will help.
I think your description of money applies to fiat money, but not to commodity money. Those water bottles being used in some Iraqi towns as money probably won’t fit your description.
I do not believe in economic bubbles.
I do, however, adhere to ABCT. The distortion of the structure of production by a credit expansion caused by central bank intervention. But you know about that already from the other thread.
“Structure of production, that’s make believe” - Neoclassical.
Honestly, haven’t you had enough of this?
I know I’ve had enough of people paraphrasing me, but putting it in quotes! Lame.
Before I begin dismantling the notion of economic bubbles, I would like an answer to the following question:
Can you predict an economic bubble, know it when it’s happening, or only identify it after it has burst?
Question: if the recent housing/equities boom/crash was not an economic bubble, then what was it? Animal spirits?
To jump in before I actually show my hand, I would claim that “animal spirits” is an explanation for bubbles, not a refutation of them.
Yeah, I was just being flip. So if you believe the markets are rational, then what circumstances do you believe caused the real value of stocks and real estate to form an upside-down V in the 2nd half of the last decade?
Why do I get the sense that this is going to become a semantical argument.
Look are you arguing against the theory itself? Or are you arguing against the real life occurrences of that theory? Why do I get the feeling that this is going to be an extremely dishonest thread. At least be upfront about what your intentions are. Don’t drag us down some rabbit hole of semantical trickery.
Also to keep things honest why don’t you tell us what your definition of bubbles are. I’d rather avoid a lengthy semantic debates. If this is going to be an argument about terminology I’d rather spend my time elsewhere on something more productive.
Both.
I’ve only asked two questions; I want to make sure I know what the opposition believes!
Can we further restrict this down to one specific topic. Either we argue about the soundness of the theory, or about it’s practical occurrences but arguing both is asking for a mess of nonesense where we spin around in circles for hours, similar to that retopper thread. If your intent is to argue both then I respectfully request that you split up your argument and either choose to argue one, or the other. If you want to argue both then make two seperate threads.
So if your intent is to actually reveal a flaw in the theory itself then start with that, and we can worry about it’s practical occurrences later since if you prove that the theory is unsound, it’s occurrences become irrelevant.
Otherwise this isn’t ever going to be a thread that can be taken seriously.