Robert Samuelson uses his column today to complain that:

"Four years after the onset of the financial crisis — in March 2008 Bear Stearns was rescued from failure — we still lack a clear understanding of the underlying causes."

Wow, it sure doesn't seem very hard to me. The Reagan-Volcker policies of the early 80s broke the link between productivity growth and wage growth for ordinary workers. This meant that demand growth did not necessarily keep pace with output potential as had been true earlier in the post-war period, since higher wages would quickly translate into higher consumption. 

That created an environment which opened a door to speculative bubbles. In the 90s it was the stock bubble which drove growth, primarily by pushing saving rates to then record lows. In the last decade it was the housing bubble which drove growth, both by creating a building boom and also by pushing saving rates even lower as bubble-generated home equity led to a consumption boom.

None of this story is new. I was writing about how the stock bubble was driving the economy in the 90s and how the housing bubble was driving the economy as early as 2002. And, I gave the historical picture in Plunder and Blunder: The Rise and Fall of the Bubble Economy.

But, folks like Robert Samuelson would rather pretend that the whole story is a great mystery rather than contemplate the possibility that the economic instability of the last decade had its roots in a pattern of growth that was built on redistributing income from ordinary workers to the most highly paid workers and corporate profits.

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