The crisis dejour - throughout time, real estate markets have experienced a crowd mindset. The more excited a market gets, the more people want to buy in, and the higher the prices are pushed up.
This mindset has occured throughout history and the cycles can be analyzed consistently. Professor Watson teaches entrepreneurship and ethics and the role in the market economy. Regardless of whether we want to evaluate recent real estate markets which have Broke, these scenarios are not unique. They have regularly occurred throughout history.
One of the most reported upon historical markets that popped was Amsterdam’s Tuplip economy. We can consider the Tulipmania of the tulip market that burst in 1637 as a popularly documented historical account of a economy that overheated.
Tulips were originally introduced from Turkey in the early 16th century. As new “varieties” of tulips were discovered, 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. This price exceeded more than six times the average annual income.
This industry mania continued - and ten years later the value had increased another ten times. At the market peak, the price of a single Semper Augustus bulb reached 10,000 florins - the equivalent of what it cost to purchase a house in central Amsterdam at the time.
Eventually the market peaked and there was no-one remaining who still wanted to purchase these bulbs at such high valuations. Within weeks, the market price crashed and thousands of people were left in economic ruin.
Throughout time - we have witnessed 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 today’s times of politically correct speech, are the contrarian voices that speak up for morality, ethics, and honesty 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 eventually correcting itself from the heat of the crowd mentality - and those polar views tend to have their bubbles burst as the inevitable correction occurs. Today’s market is no different.
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