Forever Blowing Bubbles

By my count, I've lived through five economic "bubbles." They really were the Days of Wine and Roses, weren't they? Didn't we have a good time? But why does each hangover seem to hurt more and last longer?

First there was the post-war bubble in the late 1940s and 1950s fueled by the G.I Bill of Rights and Eisenhower's interstate highway construction project. Everybody was either going to college or pouring concrete, courtesy of the federal government.

Then came the guns-and-butter Johnson bubble of the 1960s when we fought a war in Vietnam, fought another war on poverty and sent humans to the moon in less than a decade to beat the Soviets to the punch. So much money to spend, so much to protest, so little time.

And then there was the Reagan bubble of the 1980s when we cut income taxes, dramatically increased defense spending and deregulated savings and loans. Of course the S&Ls promptly used their freedom to do a Thelma-and-Louise and drive off the cliff. But hey, it was such a fun time and Nancy's red china in the White House really was beautiful.

Next we had the tech bubble in the Clinton 1990s. While Bill and Monica were diddling, the child wonders from Harvard were using the Internet to create a "new paradigm" in the economy. I always thought paradigm was a strange word, and I figured that nobody really knew what it meant -- especially those who threw it around a lot. In the 1998-2001 period, I was among those who had serious doubts that technology could revolutionize ingrained economic patterns overnight. In most meetings, however, those of us felt that way were hooted down by the bright young things who knew a new paradigm when they saw one. They had no patience for dinosaurs living in paper caves. Unfortunately, the new paradigm evaporated along with the phantom profits from initial public stock offerings as the the Nasdaq stock market crashed to earth.

Finally we had the housing bubble of the Bush Two years. Isn't it ironic that the smartest, shrewdest, most cunning people in the world -- those working on Wall Street -- fell under the sway of the oldest economic myth in the book. The myth, of course, is that housing prices can only go up. Talk about a new paradigm! Apparently none of them had read about the Florida real estate bubble in the 1920s or the California real estate bubble in the 1990s. These smart people thought they had solved the problem: they eliminated all risk in the real estate marketplace by tossing mortgages around like hot potatoes. And of course they were much too smart to be caught holding the hot potatoes when the music stopped, weren't they?

Bubbles are such fun things. They make us giggle. Too bad they eventually pop.