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Economic News, Data and Analysis

Bubble Confusion

In a recent series of articles in the Washington Post, yet another writer confuses the stock market with the economy. (See below.) I’ve fumed about this before (with nice graphs as well), but it looks like I need to say it again.
The “Bubble” of the late 1990’s was in the stock market. Various factors led to stock prices that were “too high” and that rose “too fast.” Eventually the stock market bubble burst, leading to large declines, especially in the technology sector.
The economic growth of the 1990s, however, was real: unemployment declined to record lows, growth was relatively high, incomes grew, and poverty declined. These were real things – cars, houses, ect. – and economic growth had real, tangible, positive consequences for real people.
Do not confuse the two! It was not a “Bubble Economy,” it was a “Bubble Stock Market.”
More on market bubbles

In a Bubble Economy, Recognition Comes Too Late (washingtonpost.com)
By Steven Pearlstein
Washington Post Staff Writer
Sunday, November 10, 2002; Page A01
Mention the Bubble Economy and, for many Americans, it now conjures up images of shredded documents and half-built Houston mansions, depleted pension accounts and executives being led off in handcuffs. But it didn’t start out that way.
Roughly from 1995 through the end of 2000, the Bubble Economy was known as the new economy, and nearly everyone thought it was a marvelous thing.
Billions of dollars poured in from all over the world from people hoping to get in on the ground floor of the Internet, a medium that held the promise of transforming not only the economy, but life as we knew it. Stock prices rose higher and faster than at any time in history, making the ups and downs of the Nasdaq Stock Market a national obsession.
Now, of course, we know it wasn’t all real, and it certainly wasn’t enduring. Twenty months after it tipped into recession, the economy is barely growing. Stock prices are back where they were four or five years ago. And nobody is sure how much of the revenue and profit growth during the bubble was real.

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Filed under: Economics, Economy, Finance

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