Relax and Learn to Love the Stocks Bubble
They can be socially useful — just as long as the bankers are kept out.
Froth is good, sometimes.
Photographer: Chris Delmas/AFP
There’s been a lot of agonizing about bubbles lately. The signs of excess are hard to miss, from GameStop Corp. and Bitcoin to the extraordinary rally in U.S. big tech. Even China has joined the drumbeat of concern, with the nation’s most senior banking regulator saying last week he’s “very worried” that bubbles in U.S. and European markets could burst.
Whether a bubble exists is a matter of keen interest for investors, who naturally want to know when to get out if there’s a crash coming (and how much they can expect to make from greater fools in the meantime). It’s also crucial for policymakers, who have to deal with the aftermath. Besides inflicting losses on asset owners, a deflating bubble can cause financial system distress and induce banks to tighten credit, a compounding process that may depress economic growth for years.