Market Bubbles may Pop – Is anything new Today?
The financial crisis dejour – throughout history, real estate markets have experienced a crowd mindset. The more popular a market becomes, the more individuals want to buy in, and the higher the prices are driven.
This social experience has occured throughout history and the cycles can be analyzed consistently. Professor G. Watson teaches business strategy and the role in the market economy. Regardless of whether we want to analyze recent credit markets which have Broke, these scenarios are not new. They have routinely occurred throughout history.
One of the most discussed historical markets that popped was Amsterdam’s Tuplip sector. We can consider the Tulipmania of the tulip market that burst in 1637 as a popularly documented historical account of a market that overheated.
Tulips were originally brought from Turkey in the early 16th century. As new “varieties” of tulip bulbs were marketed, competition intensified and their value 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 exceeded more than six times the average annual wage.
This economic mania continued – and ten years later the price had risen another ten fold. At the market height, the price 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 buy these tulips at such high valuations. Within weeks, the market price crashed and thousands of people were left in financial ruin.
Throughout time – 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 today’s times of PC speech, are the contrarian voices that speak up for character, ethics, and honesty any different? Throughout time, these contrarian voices have been demeaned and ignored. But the market for products and the market for principles 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 neccessary correction occurs. Today’s market is no different.
Filed under: General Interest