Dean Baker: The Importance of Bubbles: Who's Pocketing the Cash

The NYT had an interesting piece discussing the bubble in social media type companies, however the article misses a couple of important issues. The bursting of the current bubble will not have the same consequences for the economy because it has not yet grown large enough to move the economy in the same way as the stock bubble of the 1990s or the housing bubble in the last decade. Both of those bubbles led to consumption booms through the wealth effect, in addition to a boom in whacky Internet start-up investment and housing construction. That story could change if the bubble keeps growing, but thus far it is not large enough to move the economy in a big way.