Policy Center for the New South, August 2021, PB-21/29
Macroeconomic dynamics in the U.S. economy—and arguably also in other advanced economies—has increasingly become associated with asset price fluctuations in the past few decades.
There has been a mismatch between rising financial wealth and the pace of creation and incorporation of new assets. Along with macroeconomic and financial fluctuations, net financial wealth has on average grown over time at a faster pace than the stock of productive assets added to the real economy.
That mismatch has endured via upward reevaluation of existing assets and increased public debt. Occasional moments of asset price adjustment downward have been followed by new rounds of finance-led booms. Bubble-blowing—i.e., asset appreciation beyond ‘fundamentals’ values —has become a major driver of macroeconomic performance.
The mismatch between financial wealth growth and real-side asset…