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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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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