Would a bubble be good for the American economy?

A boom is not the same thing as a bubble

Money bubble
(Image credit: (iStock))

In an interview with Princeton Magazine, New York Times columnist and Nobel-winning economist Paul Krugman faced a difficult and rather strange question: "Are bubbles good or bad and do we need them to create strong economic growth and reach higher levels of employment?"

The question relates to an often-quoted and often-misunderstood passage from a column in 2002, in which Krugman wrote that "Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble." After the housing bubble burst and caused the Great Recession in 2008, Krugman came under a lot of fire for that comment. He explained those words further in 2009, saying he wasn't offering a prescription, but rather an analysis of what the Fed would do. (He was right on both counts.) But can bubbles actually be good for the economy?

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John Aziz is the economics and business correspondent at TheWeek.com. He is also an associate editor at Pieria.co.uk. Previously his work has appeared on Business Insider, Zero Hedge, and Noahpinion.