Rethinking The Bubble Of All Bubbles

from the bulbs-bulbs-bulbs dept

Wed, May 16th 2007 11:53pm — Joseph Weisenthal

As long as we're revisiting our assumptions about the dot com bubble, it might be time to look back at another one of history's most infamous bubbles. A new book argues that the Dutch tulip bubble of the 17th century was not nearly as big of a deal as it's been cracked up to be (via Marginal Revolution). The book tries to dispel a number of notions, including the idea that tulip mania was a society-wide phenomenon. Instead, claims the book's author, trading in tulip bulbs was mainly confined to a narrow group of elites, who were interested in tulips as pieces of art, not as investments. Because not many people were involved in the tulip trade, the overall economic effects were fairly insignificant. Perhaps what's most interesting is the book's explanation for why the tulip bubble has come to be viewed as it has. Apparently, the main first-hand accounts of the mania were written by a few judgmental scolds, who sought to play up the absurdity of the tulip trade, and so subsequent histories have relied heavily on their accounts. However, even if this revisionist account is true, it still doesn't refute the idea that at one point, tulips were the subject of major speculative excess. It's also a reminder that not all bubbles are the same, since some are based on pure speculation, while others leave a lasting societal benefit.

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Lawrence D'Oliveiro, 17 May 2007 @ 12:24am

Tell That To The Casualties
Dot-com bust not a big deal? Tell that to the folks left with hefty tax bills on their underwater stock options.
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DarkDancer, 17 May 2007 @ 3:39am

Wiser now
This relates to an earlier topic. Hopefully all those that emerged from the bubble burst are now wiser and more knowledgable. Granted, nobody is earning the same amount of silly money - BUT i do believe that as soon as investment firms and VCs think that the bubble still exists another round of finance will come into play....
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DarkDancer, 17 May 2007 @ 3:40am

Wiser now
This relates to an earlier topic. Hopefully all those that emerged from the bubble burst are now wiser and more knowledgable. Granted, nobody is earning the same amount of silly money - BUT i do believe that as soon as investment firms and VCs think that the bubble still exists another round of finance will come into play....
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Dan, 17 May 2007 @ 3:44am

The Future...
With every new generation of technology we will always have those who believe they can make a few quid. and will throw cash at the industry.
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John B, 17 May 2007 @ 8:31am

As usual, it's the Baby Boomers
I think that one of the primary drivers of the series of bubbles we have seen, and are continuing to see, is a result of the Baby Boomers preparing for their retirement. After decades of spending more than they earn, Baby Boomers hit middle age and saw old age around the corner and panicked. They decided they desperately needed to invest and make money quickly. This has resulted in a lot of money chasing too few good investment opportunities. When one bubble bursts, the Boomers move their money to a different booming (pun intended) market. Thus, the dotcom bubble, then the communications industry bubble, then the real estate market bubble, and now the beginnings of a green energy bubble.

Name a year when there wasn't a bubble forming or bursting since the late 1990's. It's essentially the same money chasing investment after investment.

What's the solution? Open up third world financial markets, which are notoriously restrictive to foreign investment. Especially, open up the market for our investment in India and China. These countries are relatively cash-poor and labor rich, compared to the U.S. They need the money and we need places to invest.
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RE.Agent, 17 May 2007 @ 11:08pm

It's a new paradigm
It's a new paradigm, and everybody who doesn't buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase.

Renters, and anybody born in a future generation, will not be able to afford a $10,000,000 starter home in 15 years. They will live in tent cities, and Hondas.

This asset bubble is different than all of the others - it will never slow down, or pop. The gains are permanent.
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