Michael Goodwin writes: Thanks to the recession, we all know about financial bubbles and the damage they cause. But are there such things as political bubbles? I say yes, and believe America is in the midst of one now.
The idea grows out of a book that dissects a financial bubble that popped nearly 300 years ago. In “The Great Mirror of Folly: Finance, Culture and the Crash of 1720,” three Yale professors recount how stocks in France, Britain and the Netherlands soared by 1,000 percent, then crashed.
The authors, according to a Wall Street Journal article, don’t accuse investors of being irrational. They included Isaac Newton and believed new corporate structures would protect them and that trade with the New World marked a global transformation.
In the long run, they were right. But caught up in market mania and blind faith in momentum, they dramatically overpaid for stocks.
That is common bubble behavior, but a similar mania can happen in political movements and turn them into bubbles, too.