Be warned. We are reliving the Roaring Twenties. Not quite a new Jazz Age — jazz is a bit tired these days. But artificial intelligence euphoria is rampant, crypto lunacy is rife, credit is bubbling in private markets and the US is once again at the heart of a global fiscal and financial maelstrom. Close to a hundred years on, we have to ask: does another 1929 crash loom?
A related and pertinent question is whether we are in a bubble. Alan Greenspan, when chair of the Federal Reserve, famously remarked during the dotcom boom of the late 1990s: “Bubbles generally are perceptible only after the fact. To spot a bubble in advance requires a judgment that hundreds of thousands of informed investors have it all wrong. Betting against markets is usually precarious at best.”
This view combines an implicit denial of the central banker’s responsibility for financial stability with a blind commitment to the Chicago school’s belief in the efficient market hypothesis, which derives from a conviction that unregulated market prices reflect all available information. For an obvious refutation, look no further than the South Sea Bubble in 1720.