Part 4--Maß und Mitte

These periods of relatively rapid growth followed by periods of relative economic stagnation are known as the business cycle. It is an inherent part of the capitalist system.

Some examples of the business cycle are listed above such as the Wall Street crash in 1929 followed by the Great Depression, the huge real estate bubble in Japan in 1980's followed by the "lost decade". Or the Dot Com bubble/Real estate bubble followed by this period of recession that we are currently experiening.

At the beginning of each of these cycles, wealth, jobs and happiness is created through hard work, creativity, late hours and ingenuity.

Yet, years later this wealth, happiness and employment which people had laboured so hard for, is inevitably snatched from grasp as we reach the top of upward swing and enter the downward shift of the business cycle.

Thus, those additional hours that were spent in the office on a Saturday morning instead of watching their kids football match in order to get that promotion amounts to nothing.

However, the severity and the frequency of these upturns and downturns can be reduced by protecting the weak through social and economic order, as highlighted by Wilhelm Röpke, thus ensuring that the Saturday morning in the office was not worthless. This can be achieved through interventions that will accelerate and soften the adjustment process. These interventions will occur through methods that are compatible with the market economy.

As a consequence citizens and companies feel more secure, confident and happier about the future. This confidence ensures that both individuals and citizens do not make stupid and reckless decisions that are purely based on short term thinking and a lack of security. Instead, the existence of economic and social order allows citizens to be prudent and more balanced in their decision making.

Part 1--Economic Bubbles:Boom and Bust

On the 10th of March 2000, the NASDAQ index reached 5132.52. This was its peak value and was more then double the value of index from the previous year.

This represented the end of one of greatest bull markets of our modern time. From then, the market began a steady decline downwards. Even today, the NASDAQ has never returned to those heady heights.

The reason for the metamorphosis of market sentiment is unknown. It could of been related to the negative findings of the United States V Microsoft case which was being heard in the Federal Court. Or the reduction in spending by companies on information communication technology following the passing of the Y2K switchover deadline.

The conclusion of the unrelentless upward advance of the New York Stock Exchange in October 1929 is equally unknown. It could of been caused by the refusal of the Massachusetts Department of Public Utilities to allow Boston Edison to split its stock into four highlighting in its decision that "due to the action of speculators" stock levels had reached a level" where no one in our judgement... on the basis of earnings, would find it to his advantage to buy". Or by some negative comments by economists in the press at the time.

These bubbles were created by rising share prices commonly in new emerging markets such as internet or radio companies. These rising prices encouraged more people to invest in the hope that the share price would rise further. These investments were not based on economic fundamentals such as price earnings ratios but on stupid speculation. This caused further rises and resulted in the creation of massive economic bubble.

When these bubbles finally collapsed, significant social and economic costs developed. These included large unemployment, wealth destruction, the collapse of consumer confidence and the start of a deflationary spiral as was the case during the great depression.