Whatever floats your boat

[If you only have time for one post today, my Econlog post is the better choice.]

Some people seem to feel a deep need to announce one “bubble” after another. Here’s the FT announcing another American “housing bubble”. I guess as long as this practice contributes to mental health, I have no objection. Just don’t let the belief in bubbles alter your behavior in any way.

Here’s The Economist, in 2011:

The bursting of the Bitcoin bubble

BITCOIN, briefly the world’s favorite cryptocurrency, is in trouble. It plummeted from a peak of around $33 per unit in June to just $2.51.

Whew! So glad I didn’t buy Bitcoin at $33. Thanks Economist.

And here’s CNN Business in 2013:

The price of Bitcoins has plunged more than 70% in the past two days, sparking a rush of activity that overwhelmed trading platforms and suggested the bubble in the virtual currency has burst. Bitcoins were down to $77.56 as of 3 p.m. ET Friday.

Prices reached as high as $266 per Bitcoin around 7:30 a.m. ET Wednesday. But the price started to fall through the rest of day and Thursday morning.

And here’s CNN Business in 2015:

Bitcoin lost more than 60% of its value last year. The digital currency has already plunged another 30% in the first few days of 2015 — and that includes a 30% rebound on Thursday!

The price of Bitcoin (XBT) briefly fell below $200 on Wednesday, an important psychological barrier, before bouncing back. . . .

Bitcoin was a bubble that has burst. Jeffrey Gundlach, head of influential investment firm DoubleLine, is firmly in the Bitcoin bear camp. In a webcast on Tuesday, Gundlach declared that Bitcoin is “on its way to being relegated to the ash heap of digital currencies.”

Now in 2019, Bitcoin prices are up to nearly $4000 and there is even more bubble talk:

We can safely say the ICO bubble is over now.

“Safely”? We can now have confidence on where Bitcoin prices will be next year? Next decade? Next century?


PS. You say, “bubbles are hard to define but I know one when I see it”. Really? How about an SUV? Do you know an SUV when you see one? Below I provide two pictures of cars that are listed as SUVs:

An SUV when I was young
An SUV today

HT: Tyler Cowen



18 Responses to “Whatever floats your boat”

  1. Gravatar of Matthew Waters Matthew Waters
    19. March 2019 at 11:08


    Would you be indifferent between one Bitcoin and $4000 of S&P 500 ETFs, given that you couldn’t sell either in five years?

  2. Gravatar of Michael Sandifer Michael Sandifer
    19. March 2019 at 11:20

    One thing I’ve learned in interacting with many economists on Twitter, from a variety of perspectives, is that many of them think bubbles exist and think that stock market crashes cause economic slowdowns, rather than the reverse. I point to temporal precedence when it comes to Fed announcements and stock price movements, how much larger the effects of changes in NGDP on stocks are versus the reverse, and how predictable stock price movements in response to NGDP shocks are, but to no avail. It is impossible to talk an economist out of a perspective, no matter how much one applies numbers,logic, and evidence.

  3. Gravatar of Lorenzo from Oz Lorenzo from Oz
    19. March 2019 at 14:13

    I hate bubble talk. Something which is only clear in retrospect is surely a deeply problematic concept. It is so often to work out what precisely is being claimed when people say “bubble!”.

    Do they mean:
    (1) The price of the asset will fall markedly at some undetermined time in the future.
    (2) The price of the asset can be expected to be subject to wild swings. (Over what time frame?)
    (3) The price of the asset is a function of some factor that is subject to major changes. (Which factor, and why, over what time frame?)
    (4) There is some “better” way to determine “proper” prices? (Please pick the information blocks that enable you to do that but other people not.)

    And so on. Bubble talk does not enlighten, it obscures.

  4. Gravatar of Christian List Christian List
    19. March 2019 at 15:28

    I agree that the mindset behind bubble thinking seems to lack symmetry. The opposite of a boom seems to be a downturn (or crash). But what’s the opposite of a bubble? A “reverse bubble”?

  5. Gravatar of ssumner ssumner
    19. March 2019 at 16:07

    Matthew, No. Bitcoin’s too risky for me.

    Michael, After 1987 it’s hard to see how any thinking person could believe that stock market crashes cause recessions.

  6. Gravatar of Michael Sandifer Michael Sandifer
    19. March 2019 at 18:18


    One of your great gifts as an economist is your grasp of the fundamentals. There are economists who’ve done much more celebrated research, but then regularly spew freshman-level economic fallacies. Some of them are Nobel winners. I don’t see that with you.

    Also, you’re uniquely free of ideology, which is also no small advantage. I’m particularly struck by the market fundamentalist econonomists I follow who nonetheless believe that huge asset bubbles are building and popping all the time. They believe government creates the bubbles, but still. The disconnect is still shocking at times.

    That said, I haven’t been able to convince you that the 1987 market crash had market monetarist causes.

  7. Gravatar of BC BC
    19. March 2019 at 23:06

    To be fair, the last bubble example (“We can safely say the ICO bubble is over now.”) I think refers to companies issuing new cryptocurrencies to raise capital. It’s not about bitcoin.

  8. Gravatar of Matthias Goergens Matthias Goergens
    19. March 2019 at 23:52

    Michael, what are the market monetarists causes you allude to for the 1987 crash?

  9. Gravatar of H_WASSHOI (Maekawa Miku-nyan lover) H_WASSHOI (Maekawa Miku-nyan lover)
    20. March 2019 at 04:18

    Maybe I found the fact that Suzuki Jimny is SUV today.


  10. Gravatar of ChrisA ChrisA
    20. March 2019 at 07:21

    Scott. Sorry for the snarky comment, but this came to mind as an interesting example of the Gell-Mann amnesia effect. Where you have good insights (like on bubbles) you can easily see how superficial the Economist and FT journalists analysis is. However when they opine on matters that you have less first hand experience, such as your Brexit post a few days ago, you accept their analysis unquestionably. I have checked by the way, and really truly, families and friends are not being torn apart by the Brexit debate in the UK. People discuss it of course, but compared with the rioting going on in France (which is getting very little international press but it quite serious) the UK is pretty calm about it.

  11. Gravatar of Michael Sandifer Michael Sandifer
    20. March 2019 at 08:01

    Mattias Goergens,

    I think this narrative is pretty good:


    Here are two paragraphs of particular interest, regarding the beginning of the crash:

    “However, the big political news came on Aug. 11, when Alan Greenspan, a New York economist, was sworn in as chairman of the Federal Reserve Board, after being picked by President Reagan to succeed Paul Volcker. Shortly after the market peaked, Greenspan made a rookie mistake on Sept. 9, firing a “pre-emptive strike” against inflation fears by raising the Discount Rate 50 basis points. The Dow fell 62 points on the news. Then, the final panic began to unfold on Wednesday, Oct. 16, 1987, when a tax bill was introduced by the House Ways and Means Committee. The bill would have severely limited tax deductions for interest paid on debt used to finance takeover activity, which had been running rampant.

    Another piece of news pushed the market down Oct. 14 – record high trade deficit figures. The dollar had been too strong in the mid-1980s. The Prime Rate shot up on Thursday, Oct. 15, and the bond market got hit hard. Bonds had fallen 13% in the previous six months. On Friday, Treasury bond rates climbed over 10% and contributed to Friday’s record down day. On Saturday, Oct. 17, 1987, U.S. Secretary of the Treasury James Baker III told the Germans to “either inflate your mark, or we’ll devalue the dollar.” On Sunday, Oct. 18, Baker went on the Sunday morning talk shows, where he said that the U.S. “would not accept” the recent German interest rate increase. Later, an unnamed Treasury official said we would “drive the dollar down” if necessary. These were fighting words that panicked the market.”

    As you can see, after Greenspan’s initial mistake, the Fed began lowering rates aggressively:


  12. Gravatar of ssumner ssumner
    20. March 2019 at 08:01

    Michael, When conservatives tell me they believe in bubbles, I like to joke that if I thought bubbles existed I’d be a socialist.

    BC, OK, fair point. But I see other articles out there that are referring to prices, not quantities.

    Chris, You said:

    “I have checked by the way”

    I see, and your “checking” is superior to mine, and to the Economist’s and to the FT’s?

  13. Gravatar of ChrisA ChrisA
    20. March 2019 at 08:36

    Scott – without doxing myself – yes.

  14. Gravatar of Benjamin Cole Benjamin Cole
    20. March 2019 at 21:26

    OT but in the ballpark, sort of:

    This is an amazing post by The Conversable Economist (who does not have a comments section on his blog).


    There is an amazing chart—about 75% of adults taking new jobs today are re-entrants to the labor force! In other words, they were not counted as unemployed and looking, or officially “unemployed.”


    The Phillips Curve has been prone for a long time, but this another steamroller over the carcass.

    Two things are going on: The longer the recovery lasts, the more we see new adult re-entrants into the labor force. I cannot imagine a healthier turn of events. And the slight (very slight) bump up in wages is spurring investment in plants and equipment to improve productivity. Also, the jobless to job opening numbers mean little. There is a huge and waiting labor pool.

    So, there is yards of slack left in the recovery. Dudes, pedal to metal.

    Oddity: Trump was right to bash the Fed for tightening. The Fed got close to driving the global economy into a recession. Trump bashed the Fed, and the hysterics lost their bowels. Trump was right, though.

    Note: Fed Chief Jerome Powell seems like an Intelligent, sensible guy, even if “Fedified.” If we could get Trump and Powell to switch jobs….

  15. Gravatar of Randomize Randomize
    21. March 2019 at 08:55

    I swore to my wife that we’d never buy a minivan or a station wagon but that an SUV was okay. Thank God they’ve started remarketing these minivan/wagons as SUVs so that I can finally buy a practical car while retaining my macho pride.

  16. Gravatar of ssumner ssumner
    21. March 2019 at 11:31

    Ben, No, not in the ballpark, and not interesting.

  17. Gravatar of Benjamin Cole Benjamin Cole
    21. March 2019 at 18:22

    Ben, No, not in the ballpark, and not interesting.—Scott Sumner

    Oh, come. Timothy Taylor (The Conversable Economist) is a perfectly reasonable, credentialed economist, and he thought this was an interesting idea, and devoted an entire column to it (the fact that most adults—-75%—-taking jobs are re-entrants to the labor force, not previously counted as “unemployed.”).

    This means there is a much larger pool of potential workers than usually imagined.

  18. Gravatar of ssumner ssumner
    23. March 2019 at 12:06

    Ben, No it doesn’t. Maybe they are new college grads.

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