Eric Janszen, a former venture capitalist, has an entertaining article on how the American economy has developed to run on bubbles.  If you like breezy historical overviews– this one goes back to WWI– you’ll love it.

These days, as Janszen puts it, we’re all orthodox free marketers on the way up, but Keynesians on the way down.  That is, a modern bubble starts with deregulation (and Fed complicity) and earnest explanations of how the old rules don’t apply and the favored market will keep rising forever.  When it cracks, everyone wants the taxpayers to bail us out. 

The housing bubble 

Only we’re in a far worse state now than when the dot-com bubble burst: in contrast to the 6% Funds Rate, high dollar, high taxes, and government surpluses of 2000, we now have a 4.5% rate, a weak dollar, deficits, and insufficient taxes.

 So we need some kind of austerity program to deal with the loss of $12 trillion in fictitious value, or at the least a return to sensible regulation so financiers don’t keep messing up the economy?  Nah, we need a new bubble.  The best bubbles, Janszen says, are already in place, popular, and have a favorable tax treatment.  There’s only one industry that’s poised to take off: alternative energy.  Now you know where to put your millions.