Bubbles: Like Putting a Cat in the Microwave Or Like Getting Drunk?

Are economic bubbles like putting a cat in the microwave or like getting drunk? The cat in the microwave is an apocryphal story about how microwave manufactures are now required to warn you not to put pets in the microwave. It’s pretty obvious that if the old lady had known it would kill her cat, she would not have put it in the microwave.

Getting drunk is a bit different. We might have an idea that it has some bad effects afterwards, but, hey, it’s fun while it lasts (just ici, tout va bien…)

There are a lot of commentators that say If only people had been warned of the fact that real estate could explode nobody would have invested in real estate. This sound too much like morning-after I will never drink again.

Bubbles happen because we, humans, like bubbles. Every bubble has its Cassandras, but people never listen to them because we like bubbles. The people who want to make money like bubbles, the regulators like bubbles, the government likes bubbles, people who buy houses like bubbles,… (in fact, by the time you count everyone who likes bubbles, it’s probably 90% of the population). We all start telling ourselves that this time is different, this is not a bubble, it’s solid growth because the internet changes everything or credit ratings change everything and real estate can only go up or deficits don’t matter.

Now, we’re in the anti-bubble (a term I owe to Megan), the I will never drink again, this time for real phase. In a couple of years, we’ll see the bubble mentality come back, ’cause that time it really will be different. ‘Round-a-round it goes.