I think we can see and measure booms and bubbles. I just think we’re lying to ourselves when we say we want to stop them.
We WANT people to live beyond their equilibrial (‘natural’) value to the world market. Bubbles and credit help us do that.
If predicting bubbles meant that the class structure would become even more rigid (it would) then would you want to eliminate bubbles? Or would you simply try to allow them to pop earlier?
We can predict bubbles. Because they’re easy to predict. A bubble occurs whenever people seek to sieze opportunities in a domain in which they have no expertise. ie: when they are gambling on momentum – swarming.
You cannot necessarily deduce a bubble from the trading data as other than some vague heuristic driven by price volatility. But if you survey consumers you can deduce bubbles all the time. If members of the lower middle class, and upper proletariat are speculating then it’s a bubble. If people outside a field are rallying to create speculative gains rather than PRODUCTIVE gains, then it’s a bubble. (PRODUCTIVE meaning that they applied additional capital to the thing that they purchased, prior to reselling it.) There is always value created by speculators who identify asymmetry of information and profit from informing others of that asymmetry. There is no value created by speculators who are swarming information that they do not understand, and where capital is not applied to transform the asset they wish to resell — in effect, where speculators are distorting information in the pricing system. (Ethically, this means liquidity encourages fraud.)
If we are borrowing to create productive increases so that people can live a higher standard of living now than they could in the future if they had the ability to use current knowledge to create current production, then it’s good spending. If we are providing liquidity because of a shortage of ‘money’ (money in the broader sense) then we are helping people to create the highest level of productivity possible. If we are borrowing to to increase consumption without increasing relative production (exports) somewhere else in the economy, then we are not creating productivity and spreading it around, we are just going into debt by consuming now despite not increasing productivity — i.e. the ability to pay it back.
A bubble is a knowledge problem caused by the failure of the pricing system to convey accurate information to participants in the economy. Cheap GENERAL credit allows average consumers to swarm opportunities.
Productivity matters. The inter-temporality of consumption vs production matters. And disconnecting consumption from productivity causes booms and busts.
So, again, maybe we (you) actually want our booms and busts if it gives people the ability to consume during booms that would never be able to consume goods above their economic class otherwise?
But targeting inflation or nominal GDP is too loose a tool for accomplishing policy goals unless the country is small and relatively homogenous.