Stock Market Bubbles should Break - Is anything different Today?
The financial crisis dejour - historically, real estate markets have experienced a crowd mentality. The more popular a market becomes, the more people want to buy in, and the higher the prices are driven.
This bubble has occured throughout history and the cycles can be observed consistently. Professor Greg Watson teaches social entrepreneurship and the role of the market economy. Regardless of whether we want to analyze recent stock markets which have Broke, these scenarios are not unique. They have consistently occurred throughout time.
One of the most talked about historical markets that broke 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 industry that overheated.
Tulips were originally introduced from Turkey in the early 16th century. As new “varieties” of tulips were sold, competition intensified and their value soared. One legitimately 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 market mania continued - and 10 years later the value had risen another ten times. At the market height, the price of a single Semper Augustus bulb reached 10,000 florins - the value of what it cost to acquire a house in central Amsterdam at the time.
Eventually the market peaked and there was no-one left who still wanted to purchase these tulips at such high prices. Within weeks, the market value crashed and thousands of people were left in economic ruin.
Throughout time - we have observed similar bubbles reoccur. As the crowd mentality continues to get more excited, those contrary voices become less and less popular to be heard. Are any of the recent market bubbles any different? In modern environment of politically correct speech, are the contrarian voices that stand up for morality, ethics, and honesty 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 always 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.
