Industry Bubbles can Pop – Is anything new Today?

The public confidence crisis dejour – throughout time, market segments have followed a crowd mentality. The more heated a market gets, the more people want to invest, and the higher the prices are pushed up.

This social experience has occured throughout history and the cycles can be studied consistently. Professor G. Watson teaches business strategy and the role of the market economy. Regardless of whether we want to analyze recent stock markets which have Burst, these events are not unique. They have regularly occurred throughout time.

One of the most discussed historical markets that popped was Amsterdam’s Tuplip economy. We can analyzie the Tulipmania of the tulip market that burst in 1637 as a popularly known historical account of a industry that overheated.

Tulips were originally brought 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. This price was more than six times the average annual wage.

This industry mania continued – and 10 years later the value had increased another ten fold. At the market peak, the price of a single Semper Augustus tulip bulb reached 10,000 florins – the equivalent 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 acquire these bulbs at such high valuations. Within weeks, the market value crashed and thousands of people were left in financial ruin.

Throughout history – we have witnessed similar bubbles reoccur. As the crowd continues to get more excited, those contrary views become less and less popular to be heard. Are any of the recent market bubbles any different? In modern environment of PC speech, are the contrarian voices that speak up for character, ethics, and integrity any different? Throughout history, these contrarian voices have been ridiculed 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 politically correct views tend to have their bubbles burst as the inevitable correction occurs. Today’s market is no different.