Paul Krugman: Things That Aren't Bubbles

Noah Smith, who is a better human being than I am, wades through an anti-Krugman rant to find an interesting nugget: the claim that money is a bubble. It isn’t, of course; but my explanation of why it isn’t is a bit different from his, and has wider implications.

I’d start by asking, what do we mean when we talk about bubbles? Basically, I’d argue, we mean that people are basing their decisions on beliefs about the future that are based on recent experience but can’t be fulfilled. E.g., people buy houses because they expect home prices to keep rising at a pace that would eventually leave nobody able to buy a first home.