Most people like bubbles. Some like to bathe in bubbles; others to drink them. To live in a bubble can be thought a pleasant state. Bubbles also have an attractive metaphysical quality. Three centuries ago, the English poet Francis Quarles asked what was lighter than wind, fire or even the mind? “A thought,” he replied. “Than thought? This bubble world.” Yet after the 10 bubble years of the noughties, many want to see them regulated out of existence – ideally forever.
Bubbles – as shown by the emerging markets headrush of the late 1990s, the dotcom frenzy that followed it, and the subsequent popping of the credit boom – have many pernicious effects. They result in poor capital allocation. They can promote social mobility – the lucky or talented entrepreneur who makes good riding the boom. More often, though, bubbles are inequitable. They reward those who own assets, versus the poor, who usually do not. The rise in Thai and Indonesian infant mortality rates after the Asian economic crisis is the bubble world's Janus face.
Yet bubbles, like all cycles, are inevitable. They will remain so long as people trade freely and prices are set by supply and demand. They existed in medieval Europe, 17th century Amsterdam and 19th century America – long before central banks that kept interest rates artificially low or state-sponsored mortgage lenders that subsidised homeowners.