First of all, let's get the obvious part out of the way: Krugman's a Nobel economist, and I'm just this guy, you know? There's an awfully good chance that he's right and I'm wrong.
But if I'm wrong, I want the hole in my reasoning pointed out, because I'm not seeing one. And one of the things you learn en route to being a mathematician (which I am) is how to go over your reasoning for holes in it, because nothing's more professionally embarrassing than claiming you've proved something when you haven't. Not to mention, for once his reasoning's kind of weak: his argument's more "everybody says X, but here's why X is wrong. The only other thing I can see is Y, so I think it must be Y." But if there's Z out there also, that argument falls apart. So here goes.
Krugman asks, "why have we been having so many bubbles" over the past 3 decades? The answer he frequently hears is: low interest rates. But a simple chart of interest rates over the past several decades causes that explanation to fall apart immediately: it's only been in the past few years that interest rates became significantly lower than those of the 1950s and early to mid 1960s. If it was interest rates, where were all the bubbles back then?
Krugman says, "So what was different [about the past three decades]? The answer seems obvious: financial deregulation, including capital account liberalization. Banks were set free — and went wild, again and again."
I think there's a case for deregulation being part of the story, but not the driver of it.
Here's what I think: it's a simple matter of supply and demand, the result of what I call TALOMSAATT - "There's A Lot Of Money Sloshing Around At The Top" - an acronym that, in my opinion, explains a hell of a lot more these days than Heinlein's TANSTAAFL ever did.
You have a lot of spare money in the hands of rich people, who want a good return on investment - ROI - on their money.
And you have less money than you should in the hands of everyone else - the people who would spend most of the money they get on goods and services, creating demand - and thereby creating investment opportunities that would have a payoff supported by that demand.
What should we expect when the money in rich peoples' bank accounts substantially outstrips opportunities to invest in new businesses (and expansions of existing ones) that consumer demand will support?
Rich people are still going to want to find some sort of investment vehicle that will produce a decent ROI, and such vehicles will be created because there is demand for them. But because rich people's demand for investment vehicles way overshoots demand that the rest of us are capable of generating for goods and services, a bunch of these vehicles are going to be without foundation. There's your bubbles. Supply and demand. End of story.
The role played by deregulation is more one of keeping some of the bubbles from being created. But some, like the dot-com bubble, were going to happen anyway, even if we had the regulations of 50 years ago in place. And we'd have probably had more bubbles along the lines of stock-market bubbles under those regs, rather than bubbles based on complex financial instruments.
And the means of preventing such bubbles is simple (technically, if not politically): make sure the 99% get enough of the pie so that the 1% will have a sufficient supply of investment opportunities that can be supported by consumer demand.
Now, if an economist will stop in and explain why my simple and clear theory is clear, simple, and wrong, I'd genuinely appreciate it. Because I don't want to convince myself of the truth of wrong things.
And who knows - maybe I'm right.