Economic Bubbles may Break – Is anything new Today?
The public confidence crisis dejour – throughout time, market segments have experienced a crowd mentality. The more heated a market gets, the more people want to jump in, and the higher the prices are pushed up.
This bubble has occured throughout history and the cycles can be observed consistently. Professor Greg Watson teaches corporate ethics and the role of the market economy. Regardless of whether we want to think about recent real estate markets which have Broke, these fluctuations are not unique. They have regularly occurred throughout time.
One of the most reported upon historical markets that broke was Amsterdam’s Tuplip sector. We can study the Tulipmania of the tulip market that burst in 1637 as a popularly known historical account of a market that overheated.
Tulips were originally imported from Turkey in the early 16th century. As new “varieties” of tulips were marketed, competition intensified and their prices soared. One apparently 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 income.
This industry mania continued – and ten years later the price had increased another ten times. At the market height, the value of a single Semper Augustus tulip bulb reached 10,000 florins – the equivalent of what it cost to buy a house in the middle of Amsterdam at the time.
With time the market peaked and there was no-one remaining who still wanted to acquire these tulips at such high valuations. Within months, the market value crashed and thousands of people were left in financial ruin.
Throughout time – we have seen similar bubbles develop. 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 today’s 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 ideas has a way of eventually correcting itself from the heat of the crowd – and those polar views tend to have their bubbles burst as the required correction occurs. Today’s market is no different.
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