Economic Bubbles may Break – Is anything new Today?
The financial crisis dejour – historically, real estate markets have experienced a crowd mentality. The more heated a market becomes, the more individuals want to jump in, and the higher the prices are pushed up.
This social experience has occured throughout history and the cycles can be analyzed consistently. Professor Greg Watson teaches entrepreneurship and the role in the market economy. Regardless of whether we want to think about recent finance markets which have Pop, these fluctuations are not new. They have consistently occurred throughout time.
One of the most discussed historical markets that broke was Amsterdam’s Tuplip market. We can study the Tulipmania of the tulip market that burst in 1637 as a popularly reported historical account of a economy that overheated.
Tulips were originally introduced from Turkey in the early 16th century. As new “varieties” of tulips were marketed, competition intensified and their value soared. One honestly rare variety was the Semper Augustus which reached values in excess of 1,000 florins per single bulb in 1623. That price was more than six times the average annual wage.
This economic mania continued – and 10 years later the value had increased another ten times. At the market peak, the price of a single Semper Augustus bulb reached 10,000 florins – the value of what it cost to buy a house in central Amsterdam at the time.
With time the market peaked and there was no-one left who still wanted to buy these bulbs at such high valuations. Within weeks, the market price crashed and thousands of people were left in financial ruin.
Throughout history – we have observed similar bubbles reoccur. As the crowd continues to get more hyped, those contrary voices become less and less popular to be heard. Are any of the recent market bubbles any different? In modern times of PC speech, are the contrarian voices that speak up for morality, ethics, and integrity any different? Throughout history, these contrarian voices have been demeaned and ignored. But the market for products and the market for principles has a way of always correcting itself from the heat of the crowd – and those polar views tend to have their bubbles burst as the inevitable correction occurs. Today’s market is no different.
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