Anyone who follows markets knows that bubbles, and succeeding crashes, are a recurring phenomenon.  Famous historical examples include the Dutch "tulip mania" of the 1630s, the French Louisiana Company bubble and British South Sea Company, both around 1720.  More recent examples include the American stock market bubble of the 1920s (and crash of 1929) and the Japanese stock market bubble of the 1980s (and crash of 1989).

Getting to the more recent time, we have the housing bubble of the early 2000s that led to our current economic difficulties.

It's easy to spot bubbles in hindsight.  But a better question is, are we in any bubbles right now, bubbles that have blown up really big and are getting ready for a big crash?

Over at Instapundit, Glenn Reynolds has a long-running series on what he calls the "higher education bubble."  The thesis is that the cost of higher education has soared under an umbrella of Federal spending and easy student loans, and that that bubble is set for a big crash over the next few years, as students realize that the education is not worth the cost and debt, and as internet alternatives replace ridiculously costly in-person college courses.  I'm willing to bet he's right.  On the other hand, higher education is only about 3% of U.S. GDP.  If that suddenly got cut in half over the course of a few years, it would be rather hard on colleges and professors, but not nearly the scope of the bursting of the housing bubble a few years ago.

But is there any other bubble out there that is much larger, a big multiple of the size of the higher education bubble?  Here's a hint:  private economic activity, although subject to bubbles, is also subject to self-correction.  There are limits to how large bubbles can blow up without the government credit card to back them.  With the backing of the government credit card, a bubble can start taking over an entire economy.

Here's my nominee for the really big bubble, the one whose bursting will be a multiple of anything previously seen:  health care.  In 1960, before Medicare and Medicaid, according to this article U.S. spending on health care was about 5% of GDP.  Today, 18%.  Those numbers are somewhat exaggerated compared to what I've seen elsewhere, but suppose it's 7% and 17%.   At 10% of GDP, we have $1.5 trillion of annual spending in play in excess of the best evidence of what private spending alone would support.  And, the 17% is rapidly increasing.  Medicare and Medicaid have grown at about an 8% CAGR since inception, and are not really showing signs of slowing down.

Proposition One:  Something that can't continue, won't.  Proposition Two:  When this one ends, it will not be pretty.

I do think that the higher education bubble will burst first.