Blowing Bubbles

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"Is this another bubble?" It's a question you hear often around here these days.  This is understandable given the legions of new millionaires in our midst and the accompanying surge in prices for everything from a cup of coffee to a condo.

But financial bubbles are objects that can truly only be seen in the rear view mirror, and it is important to remember that while these bubbles share certain characteristics, each one, like their distant cousin the snowflake, is unique. The dot-com bust was not like the housing bust, and whatever we are experiencing right now will unwind or evolve in its own way.  

The concept of a bubble is appealing in many ways. It tells a story; there is the arc of rise and fall. It explains a world in which the very nature of things appears to change, when houses become piggy banks or trivial diversions become the basis for great enterprises. It also renders a verdict. People are quick to see a moral judgment when a period of economic excess comes to an end: see how the greedy and gullible got what they deserved. It reframes the success was not so much the result of skill and hard work, but simply a matter of being in the right place at the right time.

But the aftermath is never that neat. After all, the bubble as a metaphor for financial excess fits only up to a point. When a real bubble bursts, it dissolves into a faint drizzle and disappears. Economic bubbles are made of far heavier parts and the wreckage left in their wake can last for years. And the justice dispensed is indiscriminate: the speculator loses, but in time so do the carpenter and the waitress.

In a sense, all this conjecture is a distraction because what really threatens us is not the ephemeral, but the persistent: stubbornly high unemployment and our growing disparity in wealth. Indeed, nothing underscores this disparity better than the fact that while some of us are wondering if our stock portfolios or homes are overvalued millions more are still struggling to recover from the Great Recession.


With a Perspective, this is Paul Staley.

Paul Staley lives in San Francisco and works for a housing non-profit.