I’ve always thought of the American Dream as including home ownership. You know, having your own place to tool home to and relax after a hard day’s travail.

Now, two economists at Chapman University (which is actually fairly near the American Dream abode to which I retire each evening) have asked a serious, intriguing question–and come up with a penetrating answer.

Steven Gjerstad and Vernon L. Smith ask why the collapse of the $10-trillion Dot-Com Bubble at the turn of the century had nary a ripple effect on the economy, while the recent collapse of the $3-trillion Housing Bubble sank the world.

The answer is, simply, that the Dot-Com losses were all absorbed by individuals and institutions and were not, like the Housing Bubble, encased in weird investment instruments and sold to banks and investment houses the world over. (To say nothing of their then being insured by AIG, which is now on the hook for most of the worldwide losses.)

One caveat here: It’s $3 trillion in lost equity to date, but we don’t yet know the final amount, so the comparison may be incomplete.

However, and here’s where it gets interesting, while virtually everyone blames our current downturn on the housing bust, the Great Depression–the only other period with similar devastation to the world economy–is usually attributed to a stock market crash and a tight-money policy by the Federal Reserve and other world banks.

Throwing orthodoxy out the window, Messrs. Gjerstad and Smith pin the blame for both catastrophes on housing and consumer debt (while saying more research needs to be done on the Great Depression). To be precise, they note that total mortgage debt outstanding grew from $9.35 billion in 1920 to $29.44 billion in 1929, eerily similar to recent trends. They write:

It appears that both the Great Depression and the current crisis had their origins in excessive consumer debt–especially mortgage debt–that was transmitted into the financial sector during a sharp downturn.

So, the authors answer their own question by asserting that consumer debt “can be transmitted quickly and forcefully into the financial system” and was both in 1929 and in 2008.

So if you want to live the American Dream, don’t go into debt. Pay cash for that house, dammit! (I only wish I could.)