> one question behavioral economists are trying to answer right now
> is: If the government prints a lot of money, does that raise the
> odds of a bubble forming, cet. par.? Off the top of my head I don't
> remember what kinds of answers the literature has proposed so far,
> but there's a fully fledged research program trying to answer it.
>
> Now, since I'm personally interested to know the answer to that
> question; and since you think behavioral economics is fatally
> flawed, can you point me to another research program that has a
> better literature seeking to answer the question: "if the government
> prints a lot of money, does that raise the odds of a bubble forming"?
I don't know of any such research program. Keynes's ideas, for instance, led to no such program. They were misread and then represented in forms inconsistent with them, e.g. in forms that ignore the fact of irrationality and mistakenly and irrationally identify "reason" with axiomatic deductive, including "formalized", reasoning, the result then being mislabeled Keynesian, New Keynesian etc.
He himself explained booms and busts in financial markets in terms of periodic "waves of irrational psychology" treated as characteristic of the particular psychopathology dominant in them.
The fact of "uncertainty" meant that rational grounds on which to base long run expectations of future yield usually didn't exist. Though this didn't necessitate irrationality in the treatment of the future, Keynes claimed the dominant psychology led to irrational treatment, namely, to the denial of the "uncertainty" and the adoption of irrational "conventions" to predict what was not rationally predictable. The particular kind of irrationality involved produced these periodic "waves" and these on their own were sufficient to explain the development and bursting of "bubbles".
There's no obvious reason why the development of manic optimism with respect to future yield requires monetary expansion in order to find expression in "bubble" present valuations of future yield. Alternatively, there's no obvious reason why money supply expansion would induce such optimism.
Keynes, in any event, thought monetary policy should be operated to keep interest rates at a permanently low level.
"If we play with dear money on the ground that it is ‘healthy’ or ‘natural’, then, I have no doubt, the inevitable slump will ensue. We must avoid it, therefore, as we would hell-fire. … A low enough long- term rate of interest cannot be achieved if we allow it to be believed that better terms will be obtainable from time to time by those who keep their resources liquid. The long-term rate of interest must be kept continuously as near as possible to what we believe to be the long-term optimum. It is not suitable to be used as a short-period weapon. (vol, XXI, p. 389)
He claimed, in addition, that the policy of using increased interest rates to end a boom or stop one from developing was itself an expression of the same psychopathology,
"a mere relic of Sadistic ... puritanism. But at this point psycho- analysis must take charge and economic analysis withdraw discreetly." (vol. XIII, p. 238)
Ted