By Dean Baker, PoliPoint Press
Posted on February 7, 2009, Printed on February 7, 2009
http://www.alternet.org/story/125421/
Editor's Note: The following is an excerpt from Plunder and Blunder: The Rise and Fall of the Bubble Economy by Dean Baker, published by PoliPoint Press, 2009.
The stock market and housing bubbles were the central features of the U.S. economy over the last 15 years. The stock bubble propelled the strongest period of economic growth since the late 1960s. The housing bubble lifted the economy from the wreckage of the stock bubble and sustained a modest recovery, at least through 2007. However, financial bubbles by definition aren't sustainable, and when they collapse, they cause enormous social and economic damage.
The economy had no problem with financial bubbles during its period of strongest and most evenly shared growth, the years from 1945 to 1973. It only became susceptible to bubbles after the pattern of growth had broken down -- when most workers no longer shared in the benefits of productivity growth, and businesses no longer routinely invested to meet increased demand based on growing consumption. We don't have enough evidence to say that bubbles are a direct outgrowth of inequality, but, again, we do know that bubbles weren't a problem when income was more evenly distributed.
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