6 ms·
Driven by government regulations which are too inelastic to respond to changes in the economy. Easy example: governments, by definition, will spend more money
by sol_remmy 9y ago
Driven by government regulations which are too inelastic to respond to changes in the economy.
Easy example: governments, by definition, will spend more money year after year. Governments rarely 'scale back' their expenditures. When 1) taxes cannot be raised and 2) money cannot be raised through treasury bonds, then there is a crash.
Government is bound to follow the boom/bust cycle and brings the rest of the economy with it. Sectors of the economy that heavily rely on government spending like: health care, defence, banking, education, transportation, will crash and it will be sudden.
- ajross 9y agoBoom/bust speculation cycles predate government regulation by centuries. Somewhere around here I have a tulip farm to sell you cheap...
- sol_remmy 9y agoThe Economist disagrees with you: https://www.economist.com/blogs/freeexchange/2013/10/economic-history https://www.economist.com/blogs/freeexchange/2013/10/economi... Was tulipmania irrational? Tulipmania was not just crazy speculation
- ajross 9y agoThe point was that it wasn't caused by government regulation. And it was a quip, anyway, pointing out that even late renaissance "investors" in a completely new market would see a boom/bust cycle.
- sol_remmy 9y agoPlease read the article, it explicitly states that the Dutch tulip boom/bust was caused by government regulation. > Earl Thompson, formerly of UCLA, takes a different approach. He reckons that the market for tulips was an efficient response to changing financial regulation—in particular, the anticipated government conversion of futures contracts into options contracts. This ruse was dreamt up by government officials, who themselves were keen to make a quick buck from the tulip trade. > In plain English, investors who had bought the right to buy tulips in the future were no longer obliged to buy them. If the market price was not high enough for investors’ liking, they could pay a small fine and cancel the contract. The balance between risk and reward in the tulip market was skewed massively in investors’ favour. The inevitable result was a huge increase in tulip options prices. (The price of options collapsed when the government saw sense and cancelled the contracts.)
- anon1385 9y agoOf course The Economist thinks markets are perfect and government regulation is to blame for everything. Spreading that idea is why the magazine exists. If the article was promoting a different theory then it would never have been published in The Economist.
- dmoy 9y agoI'm not following, nowhere in that article does it say there was no boom/bust of tulips.
- sol_remmy 9y agoThe article states 1) it was a boom/bust and 2) the boom/bust was caused by government regulation. It states that Tulipmania was a rational response to anticipated government regulation that would let investors cancel their futures contracts for only a small fee.
- tweedledee 9y agoOnly an economist could look at the tulip 'incident' and not see a speculative bubble
- unknown_apostle 9y agoThe tulip mania occurred after Europe had been flooded with precious metals coming from the Americas and later currency debasement to finance war. Doesn't mean that activist central banking isn't the cause of today's financialization and serial bubbles.