The Conspiracy of Bubbles

Right, so I’m writing a novel this week. One potential plot element is about a global conspiracy to hush up/solve/delay an impending economic bubble bursting, a bubble as large or larger than the Recession or the Wall Street Crash. Let’s assume the commodity is housing mortgages, although it could equally be internet, tulips or whatever else – the main thing is that x commodity is overvalued, thus a bubble, and its bursting will cause untold harm to millions.

I’m concerned to make the plot as watertight/reasonable/believable as possible, within the confines of fiction. Thusly I’d love it if you pointed out flaws, either publicly or via email/facebook/twitter.

The premise goes that someone of the ‘powers that be’ recognises a bubble exists and is close to bursting before the market does. That government then clandestinely convinces the other G20 governments of the risk, along with the OECD, IMF, World Bank and UN Security Council. [Any other big ones?]

These organisations then hatch a plan to consciously, deliberately deceive the world markets (i.e. the banks and civil society) that whatever commodity is stable. They do this mainly by convincing (bribing, threatening, drugging, manipulating or actually convincing-through-argument) 1,000 or so of the world’s leading economists and economic journalists to publicly lie. Some such economists would be asked to produce substantial-looking research which backs up their position. They would be given scope to disagree amongst themselves in terms of complexity and threat, i.e. they would have slightly differing opinions, making for a more convincing artificial spectrum.

One arm of this spectrum would criticise the state of x commodity, but along the lines of “It has certain structural problems which aren’t ideal but can and should be solved via reforms” (e.g. in government tax/spend/debt policies, in banking regulation, in trade agreements). This gives the world’s governments the time and mandate to slowly ‘deflate’ said bubble far less painfully.

For now, ignore some of the practical problems (getting Russians, Chinese and American governments and economists to agree; stopping any leaks*; making sure the ‘reform’ part is enacted as well as the ‘denial’ part). I’m more interested in the actual economics of it – as I understand it, bubbles rise and fall on demand and market confidence, so artificially manipulating these could have the desired effect. But I’m very aware that I’m not a trained economist.

I imagine this would be a sort of Super Nudge, drawing a little on Plato’s justifications for the ‘Noble Lie’. Or you could look at it as Keynsianism, with the [normally important] government-spending-to-increase-liquidity step missed out. Any and all criticism, improvements, caveats, recommended reading, commentary etc is not only welcome, but actually requested.

Commenters are also welcome to speculate whether such action could/would have mitigated the crash in 2007.

* However, leaks may not be all that important. A substantial element of ‘climate sceptics’ (‘climate change deniers’) genuinely believe that the scientific consensus over global warming is a great conspiracy, enabling ?people? to take power and enact ?policies? What’s interesting about this is that, even if my fictional conspiracy is compromised to some extent, it will still have quite a large effect, creating a debate between lawyers and un-bribed economists in which each side belittles and criticises the other, mitigating a complete bubble-burst in the same way climate sceptics continue to frustrate meaningful environmental protection action.

**N.B. I stole my title from an excellent 65daysofstatic song, the Conspiracy of Seeds.

*** If and when I’m awarded a Nobel Prize, I will mention all commenters in my acceptance speech.

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2 thoughts on “The Conspiracy of Bubbles

  1. Bubbles happen when enough people believe that the price of a commodity is going to continue to rise, even when that price exceeds objective measures of value by other means. In today’s transparent markets, it is very hard indeed, perhaps impossible, for governments to influence that belief. What they can do is to use their actual or borrowed or created financial resources to put a floor under the price of a commodity by guaranteeing to buy it at a certain price. This buys them time but at a cost. It works in the short term but in the the longer term depends on the market’s belief in to how long the government is willing or able, financially or politically, to continue to commit resources to this strategy. So the dangerous commodity bubble turns into a dangerous bubble in governments’ credibility …..

    PS I’m not an economist either!

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