America Lost in a Bubble

All bubbles burst.  This is a law of nature.  No matter from what material the bubble arises.  No matter what forces propel its expansion.  All bubbles burst. 

Actually the science of bursting bubbles has recently popped into the forefront of scientific discovery.  Conventional wisdom has taught since the beginning of time that when a bubble bursts it simply vanishes.  However, recent observations using high speed cameras has revealed that when a bubble bursts it leaves a circle of miniature daughter bubbles that pop so fast the eye cannot catch it.  There is even the thought that each daughter bubble leaves a ring and each daughter bubble leaves a ring ad infinitum.   All happening so fast it cannot be seen.  And yet, each succeeding bubble bursts.

The physics of bubbles tells us that the pressure on the inside works against the tension on the surface and a ratio between the two determines when the bubble will burst.  No matter how it bursts, no matter why or when it bursts one thing is certain: all bubbles burst.

In economics a bubble is the term commonly used for a cycle characterized by rapid expansion followed by rapid often dramatic contraction.  What causes economic bubbles is often a matter of dispute among economists.  Some believe they are a natural part of the economic cycle: everything goes up, and everything eventually comes back down. 

Others believe they are caused by inflation.  In this scenario everything has a natural price which is the intersection of cost and demand.  The Bubble is the artificial rise of price over the natural price.  Eventually the economy must correct itself and the inflated product will return to its natural price.

No matter which theory you subscribe to, one thing is certain: all bubbles burst.

Remember the Clinton years?  Today the official History as dispensed constantly by the Corporations Once Known as the Mainstream Media is that the wise and benevolent rule of the man from Hope was a time of plenty.  There was solid growth and balanced budgets.  As the Progressive narrative goes, President Clinton alone was responsible for the growth of the nineties which Bush the Younger proceeded to destroy leaving a mess for President Obama who has fought valiantly to restart the economy and save the day.  At least that’s the story as dispensed by the headlines and the talking heads.

The reality is approximately 180 degrees opposite of the spin.

President Clinton won a three way election with less than 50% of the vote (twice) and called it a mandate both times.  The policies he opposed for his entire career had recently won the Cold War, and President Clinton reaped the rewards.  He gutted the military and called it a Peace Dividend which he proceeded to spend on social engineering projects pumping up the economy with government spending.  Then the Dot-com Boom turned into the Dot-com Bubble and the economy was roaring.  Another plus for Clinton was the defeat of Hillarycare which would have torpedoed the economy just as Obamacare is now.  He also profited by the election of a Republican House in 1994 which kept the promises in the Contract With America and led the way in cutting spending and building a budget that at least appeared to be balanced. 

Everything was coming up roses. The economy was growing and so was the Dot-com Bubble, which everyone just knew would go on forever even though anyone older than the milk in the fridge should have known that all bubbles burst.

In 2000 George II won a contested election, and before he had time to change the drapes in the Oval Office the Dot-com Bubble burst.  This led to a short sharp recession; this was the one that Bush didn’t blame on Clinton.  He instead passed the now infamous Bush tax cuts and mailed out what he called rebates in the form of free money to spur the economy.  All the while behind the scenes the housing bubble was beginning to inflate to epic proportions.   Federal spending grew, the government grew, and the bubble grew.

During the go-go years people with no job, no money, and sometimes no ID were able to buy McMansions for no money down and walk out with cash in their hands.  How could this ever go wrong?  I remember hearing of people bidding on houses, offering 10% over the asking price and losing out to someone who offered more.  Prices went up and up and up and somehow even sane people apparently thought it would never end. 

Things looked good.  Things looked very good.  Following the recession which began seven weeks after President Bush took office, America had six years of uninterrupted economic growth.  There were fifty two straight months of job creation producing more than eight million new jobs, the unemployment averaged 5.3 %, after-tax income per capita increased by11%, from 2000 to 2007, and GDP grew by more than 17 % adding almost $2.1 trillion.  Exotic ways to paper over the fact that people with no money were buying houses fueling the boom kept everyone smiling and the bubble expanding.

The only problem was that eventually all bubbles burst.  And when it did John McCain suspended his presidential race to fly back to Washington and add his hearty, “Me Too” to the bailout and seal his fate. 

President Obama took office as the economy crashed into the deepest recession since World War Two.  He immediately began blaming President Bush and hasn’t stopped yet.  He passed the largest stimulus bill in American History, began a record expansion of the Federal government, and the largest spending binge since the beginning of time.  All in the name of cleaning up the mess from the bursting of the housing bubble. 

And what are all these trillions of dollars in reckless spending doing?  Are they inflating another bubble?  Change the words and you change the perception: spending becomes investment and responsibility becomes austerity.  Those who are manning the pumps aren’t blowing up a financial bubble they are showing compassion for their fellow man and investing for the future.  Anyone who warns of a coming crash or tries to slow the rate of spending is pushing grandma off the cliff for the benefit of millionaires and billionaires.

No matter how this mad dash to nowhere is spun one thing is certain: all bubbles burst

On the brighter side President Obama has perfected the cure for illegal immigration.  The economy has taken such a massive hit that the illegal immigrants are leaving looking for greener pastures.  And he has also brought the solution to a 10%+ unemployment rate.  So many people have become discouraged that they have dropped out of the labor market, and according to our current administration this is good news.  Perhaps we should take a cue from Mr. Obama’s favorite pastime and just consider his first term a mulligan.

Maybe the slogan for President Obama’s second term shouldn’t be “Forward.” Perhaps it should be “I deserve a re-do.”

Just remember: all bubbles burst.

Dr. Owens teaches History, Political Science, and Religion for Southside Virginia Community College.  He is the Historian of the Future and the author of the History of the Future @ http://drrobertowens.com © 2012 Robert R. Owens drrobertowens@hotmail.com  Follow Dr. Robert Owens on Facebook or Twitter @ Drrobertowens

 

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