Market Bubbles should Pop – Is anything different Today?
The public confidence crisis dejour – throughout time, financial markets have followed a crowd mentality. The more excited 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 studied consistently. Professor Watson teaches entrepreneurs and the role in the market economy. Regardless of whether we want to think about recent real estate markets which have Burst, these fluctuations are not unique. They have regularly occurred throughout time.
One of the most talked about historical markets that popped was Amsterdam’s Tuplip market. We can analyzie the Tulipmania of the tulip market that burst in 1637 as a popularly reported historical account of a economy that overheated.
Tulips were originally imported from Turkey in the early 16th century. As new “varieties” of tulip bulbs were introduced, competition intensified and their prices soared. One legitimately rare variety was the Semper Augustus which reached prices in excess of 1,000 florins per single bulb in 1623. That price was more than six times the average annual income.
This market mania continued – and 10 years later the value had risen another ten times. At the market height, the value of a single Semper Augustus tulip bulb reached 10,000 florins – the value of what it cost to purchase a house in the middle of 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 months, the market price crashed and thousands of people were left in economic ruin.
Throughout history – we have seen similar bubbles develop. As the crowd mentality continues to get more hyped, those contrary views become less and less popular to be heard. Are any of the recent market bubbles any different? In today’s environment of PC speech, are the contrarian voices that speak up for character, ethics, and integrity any different? Throughout time, 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 extremist views tend to have their bubbles burst as the required correction occurs. Today’s market is no different.
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