What is insanity? Insanity is doing something over and over again, while expecting a different outcome.
The world economic crisis in 2007/08 came as a shock to everyone. Despite the fact that it happened before. The economy has seen several crisis, even before we had fancy words for all the different loan offers and interest packages; the economy has been in crisis long before we had the nation-state as we know it today and it has probably been in crisis since we think about it as economy. So, why are we always surprised when the economy suddenly is in crisis all over again?
One of the images of the last crisis in 2007/08, the one about bubbles, is particularly interesting to look at. In 2007/08, the housing market in the US crashed and through a trigger effect it pulled everything else down with it.
The housing market was a bubble, an economic bubble.
What does this mean?
A bubble grows, as one blows more air into it. It looks beautiful flying around in the air, growing, but then, at some point …
At some point the bubble pops. And all the air that has been pumped into it disappears in the sky. Even though this is the fate of every bubble, we don’t think about bubbles as something too bad in the economy, do we? As long as it grows, we like to pump more and more air into it. We don’t think about the moment when the bubble breaks, otherwise we would have stopped doing it a long time ago.
One fitting and real example is the one of tulips. Tulips are beautiful flowers, and they are not that expensive.
However, we had a period in the Netherlands of the 17th Century, where it was more expensive to buy a tulip than a house.
Every day the tulip would be more valuable and the next day you could sell it for even more than you paid. The day after for even more, and the day after that even more again, and so on. It was the day after the day after the day after the next day, when the tulip was suddenly worth nothing.
People lost everything because all they had was pumped into the tulip bubble. Within one year, the tulip flower price had risen and fallen.
That sounds crazy, doesn’t it?
In 2007/08 we did the same with houses. Currently we are doing the same with the internet, with new energy sources and, again, with houses.
We are doing the same thing over and over again, while expecting a different outcome.
Is it the market that is mad or are we humans just insane?