Housing and the Madness of Crowds

I was intrigued by this article in The Atlantic that discussed the housing bubble, and in a sort of Malcolm Gladwell-esque way, suggested that economic “bubbles” might be treated like viruses, and prevented in analogous ways to how we work to contain the spread of diseases.

I was of two minds about the premise: on the one hand, I suspect we will be able to eliminate bubbles easily once we eliminate human nature. But another part of me feels that—as Professor Sowell himself has suggested—a certain level of economic literacy is required for any citizen to function effectively in society, and that teaching our kids a bit more about the dangers of “over-exuberant” speculation might really work to take the edge off of economic highs and lows.

Thoughts? Can bubbles be avoided? Will the housing collapse have far-reaching effects over the next several years? And given how ingrained this sort of behavior is into human nature, is there something we should be teaching the youngsters that might do them any good? (Or will they, as young people are wont to do, insist on learning the hard way?)

(X-posted at Little Miss Attila.)

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