At the core of economic bubbles is still the human desire to do as everyone is doing. Except the information we have is not fair, objective or complete. Some economic bubbles can happen in some sectors, some regions and some groups of people. The biggest economic bubble was the Great American stock market crash leading to the Great Depression because it involved the entire country. The last economic bubble was the mortgage sub-prime bubble.
What is it like for the people who put money into stuff that would crash? People who witness economic bubbles or lost money in economic bubbles still believe it has to do with ‘math’. The truth is that economic bubbles have to do with ‘hype’ – a term meaning ‘heaving promotion’ of an idea.
Modern capitalism is based on the belief that ‘innovation drives growth’. This can allow for economic bubbles – like selling ‘snake oil’ as a new innovation. We need growth because we want to maintain our well-being with less – that is one way to utilize growth and innovation. We have found, from other fields of knowledge that ‘growth through harder consumption’ leads to a dead-end but that ‘growth through smarter consumption’ is sustainable. But that doesn’t safe-guard against ‘economic bubbles’.
If we were ‘duped’ into an economic bubble, what motivated us to be fooled?