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Bubbles old and new: Economists wrestle with a theoretical impossibility

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From: International Herald Tribune
Date: 20050429
Author:Alan B. Krueger

Alan B. Krueger
International Herald Tribune
04-29-2005
Jonathan Swift is credited with affixing the label ''bubble'' to a stock price that far exceeded its economic value in a poem written in December 1720, just after the stock price of the South Sea Co. tumbled. The last stanza read: ''The Nation too, too late will find/ Computing all their Cost and Trouble/ Directors Promises but Wind/ South Sea at best a mighty Bubble.'' Perhaps it is a tad late, but economists are rediscovering bubbles. Before the prices of Internet stocks crashed in April 2000, most financial economists believed that ...

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