Jesse Eisinger (and his friend) pose some good questions in a previous post: “Are we to conclude from your book that since bubbles are great for the economy we shouldn’t worry about pricking them?” And “Should the government, assorted regulators, and/or the Federal Reserve take steps to curtail bubbles? Which is worse: Allowing bubbles to happen or trying to stop them?”

These are questions that I raise as well. In my conclusion, I write: “When asset prices are deemed dangerously high, should the Federal Reserve raise interest rates to choke off speculation? Should Congress phase out tax credits for an exciting new technology when private sector capital floods into the sector?

My answer to both is no, as much for practical as philosophical reasons.

To quote myself: “It is difficult to see how entities as fallible and error prone as state and federal government could manage bubbles successfully. It’s easy to read back through history and conclude what Congress or the president or the Federal Reserve should have done or should not have done at a particular moment. But history unfolds in real time and in a contingent manner. At any given moment, when policy-makers are confronted with a choice—to give land grants to railroad, or to scale back a tax credit for hybrids—they have no clue how events will unfold.”

Should we have a commission of bubble management, a group of wise economists who sit around, meet, discuss the economy, and then take actions that influence investment decisions? Actually, we do. It’s called the Federal Reserve. And, as Jesse points out, look where they’ve gotten us.

So what should policy makers do? I think they should focus on not letting things revert to the state of affairs we had in the late 1920s, when the popping of a credit bubble (combined with a bunch of other factors) led to a disaster that led many to question the very viability of our system of liberal market capitalism. Our economy needs bubble wrap. And by that I mean more of a safety net: health insurance that isn’t tied to jobs, but to citizenship; pensions that are adequately financed, insured and protected; better unemployment benefits; a bankruptcy system that allows debt to be worked out quickly but doesn’t simply hand over assets to creditors who were as reckless as their clients. Many of those hurt most by the popping of bubbles aren’t the ones who blew them in the first place. So our policy efforts should be focused on protecting and helping the employees of Worldcom, New Century, and all those ethanol companies that will likely go bust.

Government shouldn’t have a strategy of blowing the bubbles—although you would probably find some takers (including me) for the proposition that encouraging lots of capital to flow into alternative energy will end up being good for the country. But given the contours of our economy and our national character, bubbles do happen, again and again—regardless of government intent. My hope is that after reading this book, people would locate bubbles not as aberrations best forgotten, buried and explained away as rogue waves, but as part of the unpredictable system of economic tides.

Which speaks to Andy Kessler’s point. It’s interesting that the professional investors—Paul Kedrosky and Andy Kessler—have had more sanguine take on bubbles than the journalists. Which isn’t surprising. Your typical venture capitalist/tech investor has a greater tolerance for risk and a greater ability and desire to profit off the irrationality of others, while (speaking for myself here) your typical journalist has less tolerance for risk and a greater ability and desire to comment on and wonder at the irrationality of others.

Andy writes that bubbles essentially compress return cycles surrounding new technologies or fads. He writes: “All of this infrastructure would have been built anyway with returns spread over a decade or two instead of 18 months.” And therein lies the rub. How you feel about bubbles probably depends in large part on your impatience. Would you have preferred the internet to be rolled out over two decades or four years? If you bought Worldcom at the top, you know the answer. If you bought it and sold before the peak, three or four years was just fine. But for the rest of us, say people who found jobs with start up .coms (or found that the advent of .coms made our writing skills more valuable), or who saw how technology made us more productive and opened new opportunities—the compressed cycle has been a big plus. Let’s say there had been a rational, non-bubble like rollout of fiber optic cable, and careful experimentation with e-commerce along the way. Would we be where we are today? I mean that figuratively. But I also mean it literally. Would we be discussing bubbles on a blog that has morphed from the PC of Josh Marshall into a mini-media company, complete with advertising, video, employees, and a massive audience?

When looking at particular bubbles, it’s easy to argue—as some critics of this book have—that all the people who took part were simply misallocating resources. But look, if Americans hadn’t been misallocating resources in internet stocks in the 1990s, they would have been misallocating their resources elsewhere. That’s just how we roll. One of the reasons I think bubbles repeat is because they tap into the deep psychological need of a lot of people to be part of something that is hot, exploding, popping. The narratives of bubbles are tales we apparently need to tell ourselves in order to exert ourselves. Who wants to work in an industry that grows 2 or 3 percent per year? (Actually, for those of us toiling at magazines, 2 or 3 percent looks pretty good right about now.)