John S. Irons rants about those who confuse the 1990s boom with the 1990s bubble: two different (but related) things with very different effects:
Posted by DeLong at January 31, 2003 09:14 AM | TrackbackArgMax Economics Weblog: Bubble Confusion: Bubble Confusion: In a recent series of articles in the Washington Post, yet another writer confuses the stock market with the economy. (See below.) I've fumed about this before (with nice graphs as well), but it looks like I need to say it again.
The "Bubble" of the late 1990's was in the stock market. Various factors led to stock prices that were "too high" and that rose "too fast." Eventually the stock market bubble burst, leading to large declines, especially in the technology sector.
The economic growth of the 1990s, however, was real: unemployment declined to record lows, growth was relatively high, incomes grew, and poverty declined. These were real things - cars, houses, ect. - and economic growth had real, tangible, positive consequences for real people.
Do not confuse the two! It was not a "Bubble Economy," it was a "Bubble Stock Market."
The new economy boom was real.
The new fiduciary was unreal.
The "new economy" boom was real.
The "new fiduciary" bubble was unreal.
That's all very true, but it doesn't ring as well as "rubinomics."
While in my shower, I was thinking this morning that we could use a bit of a bubble right now. Too bad it was pricked so precipiteously. Next time, I hope the Fed starts by gently caressing the break pedal, instead of jumping on it. There is no doubt in my mind that many viable e-business model will never see the light because of that, i.e. just because of an irrational distrust of e-businesses.
Imagine a young entrepreneur going to a VC these days:
- So, what's your pretty idea about, baby?
- It's an internet-based...
- Ha! Ha! Ha!
- ... bububut it's got a good market...
- nobody has ever put money in dotcoms to generate cash, stupid.
- ... but Amazon.com...
- security!
Not to belabor the obvious but one of the reasons people were buying those real cars and real houses was because of their chimerical gains in the stock market.
Posted by: Quiet Storm on January 31, 2003 10:05 PMNot to belabor the obvious but one of the reasons people were buying those real cars and real houses was because of their chimerical gains in the stock market.
Posted by: Quiet Storm on January 31, 2003 10:05 PMI guess in the 1930s and even today many economists would try to distinguish between the stock market bubble and the performance of the real economy in the 1920s. "Look at the real improvement in mass-production!" That's why we're saddled with the idea that the Depression was caused by the Fed and liquidity tightening, and why the Fed has cut interest rates so dramatically in the past couple of years. Unhappily the economy will have to go pretty far south in order for economists to rethink their theories, and by then it will be too late.
Posted by: Andrew Boucher on January 31, 2003 11:28 PMI guess because of wealth effect, a bubble stock market will lead to a bubble economy. Indeed, a significant part of the REAL economic growth of the 90's, most notably the information technology sector, investment banking are bubbles.
Posted by: Harry Chan on February 2, 2003 07:38 AMNot that I think that all the gains of the 90's were fake, but I have to agree; the wealth effect & the inflated long-term income expectations it produced seem to have had, and arguably are still having, major economic effects.
Posted by: Jane Galt on February 3, 2003 09:19 AM