My Sunday column, Capital Considerations, proposed Decade of the Bubbles as an appropriate name for the last 10 years. Federal Reserve Chairman Ben Bernanke also worries about the phenomenon. On Sunday, he said stronger regulation would help prevent the speculative bubbles that can send the economy into crisis.
Political debate these days is polarized, and that creates a likelihood of bad economic policy. On one side of the debate is the group that believes government should intervene at every sign of inequity. On the other is the group that holds the market as so sacrosanct that any government involvement is a negative.
Speculative bubbles — like the dot-com bubble that led to a minor recession early in the decade and the more severe housing bubble that nearly collapsed our economy in 2006 and 2007 — are examples of inherent flaws in a market economy. Those that say capitalism is the most efficient system devised to allocate resources are correct, but that is not equivalent to saying any intrusion on a free market causes inefficiencies.
As bubbles demonstrate, market economies are at times inefficient, sometimes with disastrous consequences. The ideal economic policy is one that harnesses the strengths of the market, while recognizing that intervention sometimes is appropriate.