Bubbles, panics and crashes are a permanent feature of the economic cycle. In his classic Manias, Panics, and Crashes, financial historian Charles Kindleberger lists canals and turnpikes, railways, tulips, gold and silver mines, currencies, commodities, derivatives, building sites, ships and even Boeing 747s among assets to catch the speculators' fancy. Nor are bubbles becoming easier to stop - in fact, they may be getting more frequent. The earliest fully documented example is tulip-mania in the Netherlands in the seventeenth century, but as national economies became more interlinked and communications improved, opportunities for speculation spread internationally. By the nineteenth century, the world economy was creating and popping bubbles with the speed of a giant jacuzzi.
Economists quarrel ferociously over the issue.
Monetarists such as Congdon believe that the causes must lie outside the market itself. Excess liquidity is channelled by individuals into shares, and the 'wealth effect' then feeds into a consumer boom, which in this case is stoking, unusually, not inflation but a burgeoning trade deficit. US growth has got to slow down,' he says. New' economists like Ormerod believe that volatility is built into any complex system such as a market or economy where many different agents interact. Bubbles are inherent in the way the system works.