It seems like bubbles are natural in new fields where price estimation is hard.
Some non-economic examples of this, like new music genres. They generally follow a bubble-style evolution, beginning slowly, then expanding at an unsustainable rate and oversaturating the listeners with tons of bands doing the same unoriginal stuff before "bursting" and swift decreasing popularity. Some examples include hair metal, thrash metal, grunge, nu metal
Other cultural fads tend to be like this aswell. The point is that there is no central manipulative force in the market for these products, people are free to do whatever music, etc they want to, but still make widespread speculative decisions. Deriving from that, perhaps the internet bubble(and cdo bubble) was inevitable, whatever the central banks had done?
What's uncertainty got to do with economy-wide malinvestments and their subsequent liquidation? Businesses often fail where consumer demand is difficult to estimate. Given price control theory and the theory of prices more generally, why should one not expect what is effectively a price control over interest rates not to lead to malinvestment and waste of wealth? Given the central banks' constant injections of money into the economy, why should one not hold them culpable for the most of this mess? Mere uncertainty does not exculpate them...
Freedom of markets is positively correlated with the degree of evolution in any society...
Heh, this is pretty clever. But fads don't "bubble" and burst IMO. They die slowly and painfully, losing in popularity but remaining nevertheless because the business-end of music isn't in synch with the fans. In retrospect we get the impression that things changed very suddenly, but it's not comparable - again, IMO - to the kind of panic caused by a bubble bursting.
This answers neither of the important questions regarding the business cycle:
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
GilesStratton: This answers neither of the important questions regarding the business cycle: Why the sudden cluster of entrepreneurial errors from otherwise competent entrepreneurs? Why is the bust harsher on the stages further from production?
Indeed. Fads may resemble the business cycle, but there are big praxeological differences between the two. The business cycle is caused by entrepreneurs acting "rationally"*, within the confines of the system; you either go along with the boom and end up making malinvestments, or you try and restrain yourself (with the added difficulty of having inaccurate price signals) and end up failing. Fads, on the other hand, are influenced by the Bandwagon effect, which is a psychological concept, rather than an economic one. The mechanisms are quite different.
*-- I don't mean rationality in the neoclassical sense, hence the scare quotes
Market anarchist, Linux geek, aspiring Perl hacker, and student of the neo-Aristotelians, the classical individualist anarchists, and the Austrian school.
I raised this in another thread but I think it is pertinent so I'll post the link again:
http://www.e-m-h.org/Mand66.pdf
Apperently Mandlebrot proves that markets are inherently unstable and can develop speculative bubbles without institutional interference.
It's too technical for me but my feeling is yes, of course speculative bubbles can arise in a free market. What expansionary monetary policy can do however is allow them to go on unrealised for far longer than would otherwise be the case making them far more damaging.
Fads and fashions are more complicated than the "bandwagon effect". Actually, they are created by "pioneers" rather than bandwagons, people who want to be different and take risks. Fads and fashions are about being a leader or a follower. The very phenomena requires constant change and unpredictability in order to exist. If it hasn't been done already, I think that praxeology might do marvels if systematically applied to it.
One symptom of this basic human need of fads and fashions, was the absurd demand for jeens in the Soviet Union. There are cheaper ways to cover your legs with cloth, but that which is fashionable is worth so much more, frankly because it represents a way to attract a partner to bear your child. And that's worth quite a lot because it's exactly that behavior which put you and me here on Earth.
It's not fascism when the government does it.
“We must spend now as an investment for the future.” - President Obama