When the bubble bursts.

I'm forever blowing bubbles,

Pretty bubbles in the air,

They fly so high,

Nearly reach the sky,

Then like my dreams,

They fade and die.

Fortune's always hiding,

I've looked everywhere,

I'm forever blowing bubbles,

Pretty bubbles in the air.

This 1918 song was performed throughout the 20th century by various artists, and is well known in the UK as the club anthem for West Ham United.  Anyone who has blown bubbles will have experienced the fun of watching a bubble grow, float away and then very, very rapidly deflate and disappear.

What about economic bubbles?  A bubble is created when any asset is allowed to increase in value, irrationally and unsustainably.  Notable examples in the past two decades are the dot.com bubble in the 1990s and the various property bubbles in the early 2000s, including the USA mortgage fiasco, which is blamed as the major cause of the 2007/2008 global financial crash.  The psychology of bubbles is interesting because humans do not appear to learn any lessons from bubble bursts, which can be extremely painful.  Perhaps the main cause of not learning from the mistakes of the past is that bubbles can be extremely exciting.  Rather like a night out on the town when you might consume vast quantities of alcohol even with the experience and painful knowledge of past hangovers!  When the next 'morning after the night before' arrives, you swear it will be the last time, but it never is!  Living in an economic bubble, for example a property boom, is very similar.  Prices are rising, so more people want to buy for fear of 'falling off the property ladder', which cause prices to rise more, more people buy,........a vicious circle.  Construction firms are busy, estate agents are manic, mortgage lenders are working overtime, personal debt is rising, the national economic figures look good, so what's the problem?!  The problem is that the situation is not sustainable because rationality has gone out of the window and the economic system is out of control.  If people stop buying or banks stop lending, the bubble bursts, very quickly and with little or no warning.  People lose their properties, unemployment soars and the hangover sets in.......never again........until the next time!

As large parts of the developed world face so-called austerity and the developing world struggles to catch up, the gap between the 'haves' and 'have nots' increases and politicians believe economic growth will solve all these problems in one fell swoop.  Why would any rational person believe this fallacy?  You can't get perpetual growth on a finite planet because perpetual growth requires access to unlimited resources and the ability to dispose of unlimited waste.  But when bubbles come along the appetite to follow them is often insatiable.  Bubbles are very attractive to politicians because they provide a short-term fix to national economic problems and they can always blame the post-burst hangover on someone else.

Government policies shape nations and nations shape the world.  This short post cannot cover all that needs to be done.  But in my opinion, the world's focus ought to be on NEEDS rather than WANTS and in that vein, I am reminded of a Dutch proverb:

Getting what we want is more fun than getting what we need, but........

Possessing a toy

Is the end of the joy

Beware of the next bubble!