Americans have become bubble-conscious and bubble-shy. A tech bubble in the nineties, a housing bubble in the aughts, and fear of a massive fiscal bubble soon to come have temporally darkened the horizons of the world’s most optimistic people.
Not that bubbles are anything new. Black Friday popped the stock market. Eighteenth century bubbles burst on the Mississippi and in the South Seas. Tulips even made one bloom in Holland. Whenever greed and mania combine, bubbles beckon.
Conventional bubble imagery captures the stance of an outsider who watches it swell, vent, and collapse. But to genuinely appreciate bubble dynamics the insider’s perspective is better. The bubble experience, from within, is more like that of being in a closed universe, wherein lines of sight curve back upon themselves, and recycled expectations reinforce one another until surrounding realities are eclipsed. Realties, of course, cannot forever be obscured, however hyped hopes or blinkered perspectives become. When their force proves irresistible, bubbles break, revealing the true dispensation, all the grimmer for its long denial.
Most bubbles occur within particular settings, however their consequences may ramify. Illusions vanish about stocks, real estate, the ability of governments to pay their debts, with concomitant spillovers as the soundness of related assets are called into question. An atmosphere of gloom then replaces euphoria, apprehension complacency, and the wheels of commerce timorously slow. But society’s mainsprings generally escape permanent damage. Its institutional infrastructure, its human resources, even much of its financial capital, survives intact. And as good feeling recuperates constructive activity assumes its normal pace.
But can a whole society bubble and burst, with the resulting fall more than just a ratchet or two, but into an entirely new and degraded state? Can runaway expectations fuel the blowout of an entire civilization? Could ours be at such a risk? There may be reason to think so.
Consider the inner logic of the bubble: skyrocketing expectations due to forgetfulness about life’s plainer facts. This usually starts in a process of habituation that spirals out of control — gradually at first and then with more and more rapidity. The price of a given commodity rises steadily, initially as the result of a well-founded belief in its growing value, then because its track record suggests a sensible investment, and finally in frenzied efforts to turn a quick, and seemingly inevitable, profit. As the process accelerates, behavior becomes more and more reckless, not only through a spontaneous upsurge of animal spirits, but because a multiplying number of intermediaries — brokers, merchandisers, politicians — come to profit off the profit-taking and pour further fuel on its psychological fires. At root the bubble phenomenon resides in a fantasy that becomes increasingly “real” to the fantasists as they share it ever more exuberantly with one another, and as it is stoked by those having a rational interest in sustaining the collective delusion.
No bubble can inflate without the help of anomaly. Typically, the anomaly is heightened economic value or opportunity. Technological breakthrough, the sudden availability of something otherwise precious, an unexpected upswing in demand, spike possibilities for gain, and produce spurts in investment, exploration, or acquisition. The dynamic growth of the Western world’s, and America’s, economy has produced many such anomalous episodes, each, potentially at least, the seed of a bubble. But all this has been encompassed in a far greater anomaly, which creates the possibility of a mega-bubble of colossal scale, one that might burst the entire modern world.
For about the last two hundred years (three in a few locales), the fundamental structure of Western civilization has been anomalous in a crucial way. The anomaly consists in this: whereas in the overwhelming majority of societies the dominant route to wealth and status has been through political control, essentially the use of force or threat of force to extract value from others, in the West it has generally been through exchanges in which the parties have choices, and in which value must be returned for value received if the transaction is to consummate. We’re so conditioned to this, to the fact that our great fortunes belong to entrepreneurs, inventors, magnates, entertainers, and athletes, people who make (or do) things that others want, rather than to royalty, nobility, high priests, mandarins, court favorites and military leaders, people who take in taxes and booty things that others would prefer to keep, that we — very much including historians, journalists, and social commentators of almost every stripe — give little or no thought to it, considering it pretty much the natural order of things. But our exchange-oriented social order does not represent the natural order of things, and what it anomalously results in is of enormous –though perhaps ultimately self-destructive — consequence.