This is a natural process of the evoltuion of the increasing economy of scale, what Buckminster Fuller coined as ephemeralization. The author confuses several things here and that is the soruce of his issues. The natural tendency ofthe free market to cause natural deflation is an issue many economists ignore.

Also, it seems that the booms before 1981 led to consumer price inflation because the new money came through gov spending and went directly to purchase consumption goods. Booms after 1981 came from the Fed and as a result the new money went into assets instead of consumer goods, so inflation appeared in asset prices. It also went into higher order production. In the 1991 depression, the overinvestment was primarily in fiber optic cable. After the bust, cable sold for 10 cents on the dollar.

As complex and powerful as the ABCT is, we tend to forget that the economy is still more complex. Productivity enhancements thwart the effects of monetary pumping. The Feds stop and start monetary pumping. Rolling recessions in different industries and in different parts of the country occur between depressions. It seems to me that the “vigilance” of the Fed cuts short major corrections of malinvestments and pushes them off a few years. It seems we have several small depressions as the Fed puts off the real correction until one day the major correction happens. It’s sort of like earthquakes in that tremors precede the earthquake, or aftershocks follow it.

But if you look at average wages from the BLS, it’s clear that they have stagnated since 1973 and were only beginning to recover in 2000 when they plateaued. According to that measure, we have run very fast and hard for the past 30 years to remain in one place.

The reason why you can never predict when and where bubbles takes place is because economics is dependent on human beings who have free will. There is no possible way to quantify, and therefore predict, where people will choose to speculate.

As for the 1980s and 1990s, there are reasons why we did not notice, or did not explode the bubble sooner is related to inflation. When the government creates new money, it prices do not rise immediately. People hold \\"cash balances\\" in order to facilitate transactions. When the believe prices are going to drop, they build up their cash balances and thus draw money out of circulation. This causes a lowering in prices to a new equilibrium level. Then with prices lower the begin spending again.

If people expect prices to rise, they begin to draw down their \\"cash balances,\\" and this is the second stage of inflation. This takes time and in our own history, it took until the late 60s for people to realize that prices were not going down. Once this happens the public spends the money because government can print it to take resources away from them. Once it starts, it is difficult to stop inflation (at least politically).

During the 1980s and 1990s inflation was lower. The possible reasons why are as follows: cheap goods from China, dollar outflows for hyperinflating countries, Paul Volcker and the 21% Fed Funds Rate, and the tried and true governmental solution, redefining inflation as to make it lower. All of these factors caused more confidence in the dollar, and so the inflation was not noticed (like the 1920s) but the malinvestments were still being made.

Any particular reason why the real estate bubble and subsequent crash (peak \"bubble\" measured as housing value divided by median family income eg) revealed itself predominantly in California, Nevada, Phoenix, and Florida—particularly California? How is that consistent with the excess credit argument? Shouldn\’t the result have been more spread out?