How high are the stock prices of Amazon, Google, and Apple now?
Bit of a glib response. (One could ask, equally rhetorically, “How high are the stock prices of Tiscali, lastminute.com, and InfoSpace/Blucora now?”) But since you elaborated below with actual arguments I won’t press this point.
Tulip bulbs back in the day?
Everything you know about Tulipomania is false or incomplete. I suggest reading Famous First Bubbles.
Does the book go beyond Garber’spapers on tulipmania? My reading of Garber’s argument in those papers is:
Most people get their ideas about the tulip market from Charles Mackay, but he plagiarized his account, and it ultimately comes from “three anonymously written pamphlets”.
Mackay exaggerated, among other things, the amount of national-level economic distress resulting from the tulip mania.
“Mackay did not report transaction prices for the rare bulbs immediately after the collapse”, which are the prices one would need to establish the popping of a bubble. Instead he quoted high prices from before the bubble popped, and prices “from 60 or 200 years after the collapse”. But what he found could be consistent with the prices accurately reflecting changes in fundamentals. Why? Because a new & attractive variety of flower might gradually come into fashion (raising its price) and then suffer a glut over time as more bulbs become available (lowering its price).
One can confirm that’s how things normally worked by looking at changes over time in prices long after the bubble. Even in non-bubble times, bulb prices would consistently start high and then fall steadily.
I don’t disagree with those claims, as far as they go, but highlighting a lack of conclusive evidence for a bubble doesn’t mean there wasn’t a bubble. Even Garber’s seemingly damning review of the price data doesn’t mean much, because Garber (like Mackay) fails to quote prices from immediately after the collapse.
What Garber actually does is calculate that tulip bulb prices depreciated by 24%-76% per year over the 5-6 years after the peak. He compares that to the 2%-40% annual depreciation of bulb prices in the next century, says the earlier rates are only modestly higher than the later rates, and so there wasn’t a bubble-indicating deviation from normal depreciation.
But Garber would likely have seen the same thing even if there had been an abrupt bubble pop. Suppose a tulip bulb’s price peaked at 1000 guilders, crashed to 200 guilders within a week, then sank gradually to 100 guilders over the next five years. An economist who, knowing only the start & end points, interpolated to estimate the annual depreciation would (if I’ve done the sums right) get a 37% rate, which gives no sign of the initial crash. Observing a normal depreciation rate isn’t good evidence against a bubble; one has to know prices closer to the event.
Does Garber’s book have those data, or at least a novel argument missing from his papers?
Yes, but it hopefully wakes up people who glibly point at one stock or one price change as proof positive of bubbles: the claim for bubbles is a long-term statistical claim, and cannot be supported by simply going “Tulips!”
Does the book go beyond Garber’s papers on tulipmania?
I don’t know. Not really interested in taking the time to compare them in detail. Presumably the book form includes much more detail than space-restricted papers.
I don’t disagree with those claims, as far as they go, but highlighting a lack of conclusive evidence for a bubble doesn’t mean there wasn’t a bubble.
Given how many people cite Tulipomania as a irrefutable smackdown in these sorts of discussions (‘Bitcoins are worthless—at least you could plant tulips!’), learning that there is minimal evidence for what is popularly considered to be a large, irrefutable, historically established, unquestionable bubble should badly damage one’s confidence in other claims relating to bubbles since it tells one a lot about what passes for evidence in those discussions.
Observing a normal depreciation rate isn’t good evidence against a bubble; one has to know prices closer to the event.
It’s been a while since I read the book, but doesn’t he do exactly that and does compare depreciation from peak prices in places? For example, on pg64 of my copy:
Even from the peaks of February 1637, the price declines of the rarer bulbs, English Admiral, Admiral van der Eyck, and General Rotgans, over the course of six years was not unusually rapid. We shall see below that they fit the pattern of decline typical of a prized variety...Prices for these bulbs declined at an average annual percentage rate of 28.5 percent. From table 9.1, the three costly bulbs of February 1637 (English Admiral, Admirael van der Eyck, and General Rotgans) had an average annual price decline of 32 percent from the peak of the speculation through 1642. Using the eighteenth-century price depreciation rate as a benchmark also followed by expensive bulbs after the mania, we can infer that any price collapse for rare bulbs in February 1637 could not have exceeded 16 percent of peak prices. Thus, the crash of February 1637 for rare bulbs was not of extraordinary magnitude and did not greatly affect the normal time series pattern of rare bulb prices.
Presumably the book form includes much more detail than space-restricted papers.
I’d hope so, although I can imagine an academic padding things out with irrelevant side detail or other yakkety-yak-yak. In those cases one may as well stick with the papers.
Observing a normal depreciation rate isn’t good evidence against a bubble; one has to know prices closer to the event.
It’s been a while since I read the book, but doesn’t he do exactly that and does compare depreciation from peak prices in places? For example, on pg64 of my copy:
Not based on that quote. That’s the same reasoning he uses in his papers. (Your quoted bit appears, almost word-for-word, on pages 550 & 553 of the “Tulipmania” paper.) The flaw is the same; estimating a depreciation rate based on data points 5-6 years apart won’t tell you whether there was an abrupt dip that took only a few days or weeks.
learning that there is minimal evidence for what is popularly considered to be a large, irrefutable, historically established, unquestionable bubble should badly damage one’s confidence in other claims relating to bubbles since it tells one a lot about what passes for evidence in those discussions.
It is a good example of why one shouldn’t take people’s claims that something’s a bubble at face value. Although I don’t think the magnitude of the tulipmania has much bearing on whether tech stocks, Bitcoins, or real estate are/were bubbling; for those last three things, there are time series data that’re a lot more relevant than what happened to Dutch tulip bulbs 376 years ago.
(I also wonder whether I updated too much on the basis of one economist’s contrarianism. Really, I went too far in my last comment by referring to “a lack of conclusive evidence for a bubble” — it’s not as if I’ve looked for that evidence. I’ve just taken Garber’s word for it.)
The flaw is the same; estimating a depreciation rate based on data points 5-6 years apart won’t tell you whether there was an abrupt dip that took only a few days or weeks.
But comparing peak prices to prices years later does tell you that any ‘abrupt dip’ must have been compensated for by other price increases or maintenance of prices. If prices, from the peak, abruptly go down and then abruptly go up, and then follow their usual depreciation curve, that’s not a very bubbly story.
Although I don’t think the magnitude of the tulipmania has much bearing on whether tech stocks, Bitcoins, or real estate are/were bubbling; for those last three things, there are time series data that’re a lot more relevant than what happened to Dutch tulip bulbs 376 years ago.
Sure. It drives me nuts how people constantly bring up Tulipomania. Whether or not one agrees with Garber’s findings, it should still be obvious to them that arguing about modern finance based on Tulipomania is like trying to criticize American government based on ancient Greek politics—the sources are bad and don’t answer the questions we want to know, and even if we did have perfect knowledge of what happened so long ago, the circumstances were so different and the world was so different that it can tell us very little about vaguely similar modern situations.
I also wonder whether I updated too much on the basis of one economist’s contrarianism.
Maybe! I wonder that sometimes myself. But honestly, Tulipomania has the feel of one of those parables which are too good to be true, so I don’t expect a later economist to come along and say ‘everything you thought you knew from Garber is false! yes, the stuff about tulip-breaking virus is false! and tulip bulbs don’t depreciate extremely fast! the futures contracts weren’t canceled! there were no extenuating circumstances like plague!’ etc
But comparing peak prices to prices years later does tell you that any ‘abrupt dip’ must have been compensated for by other price increases or maintenance of prices.
I don’t follow. Garber’s data are consistent with the scenario I sketched in the penultimate paragraph of this comment, where I assume away any compensation for the initial dip.
If prices, from the peak, abruptly go down and then abruptly go up, and then follow their usual depreciation curve, that’s not a very bubbly story.
Yeah, Garber’s data are also consistent with an initial rebound.
Sure. It drives me nuts how people constantly bring up Tulipomania.
Fair enough.
I don’t expect a later economist to come along and say ‘everything you thought you knew from Garber is false! yes, the stuff about tulip-breaking virus is false! and tulip bulbs don’t depreciate extremely fast! the futures contracts weren’t canceled! there were no extenuating circumstances like plague!’
Plague? Now that’s something I don’t think he mentions in the papers. (Must...resist...urge to borrow...yet another...book.)
where I assume away any compensation for the initial dip...Garber’s data are also consistent with an initial rebound.
No, you don’t. You bury it in the ‘sank gradually’ part:
But Garber would likely have seen the same thing even if there had been an abrupt bubble pop. Suppose a tulip bulb’s price peaked at 1000 guilders, crashed to 200 guilders within a week, then sank gradually to 100 guilders over the next five years.
You can get an abrupt pop inside an normal-looking beginning/end comparison if something compensates for the pop, like another rise (unlikely) or prices then falling slower than they normally would (‘gradually’). The ground lost in the pop is then made up later.
Plague? Now that’s something I don’t think he mentions in the papers.
His book’s capsule summary of that bit goes
The speculation in common bulbs was a phenomenon lasting one month in the dreary Dutch winter of 1637. A drinking phenomenon held in the taverns, it occurred in the midst of a massive outbreak of bubonic plague and had no real consequence.
It’s the topic of chapter 5, “The Bubonic Plague”.
(Must...resist...urge to borrow...yet another...book.)
No, you don’t. You bury it in the ‘sank gradually’ part: [...] You can get an abrupt pop inside an normal-looking beginning/end comparison if something compensates for the pop, like another rise (unlikely) or prices then falling slower than they normally would (‘gradually’). The ground lost in the pop is then made up later.
Ohh, I see what you’re getting at. I’d interpreted “compensation” more narrowly as something halting or outright reversing the fall in prices, not merely decelerating it.
Yeah, my scenario implies an unusually slow price drop after the initial speedy crash. That wouldn’t surprise me in the wake of the unravelling of a self-fulfilling speculative mania.
It’s the topic of chapter 5, “The Bubonic Plague”. [...] (It’s on Libgen, and isn’t a very long book.)
Good to know, thanks. Added that to my mental things-to-look-at-on-a-rainy-day list.
Bit of a glib response. (One could ask, equally rhetorically, “How high are the stock prices of Tiscali, lastminute.com, and InfoSpace/Blucora now?”) But since you elaborated below with actual arguments I won’t press this point.
Does the book go beyond Garber’s papers on tulipmania? My reading of Garber’s argument in those papers is:
Most people get their ideas about the tulip market from Charles Mackay, but he plagiarized his account, and it ultimately comes from “three anonymously written pamphlets”.
Mackay exaggerated, among other things, the amount of national-level economic distress resulting from the tulip mania.
“Mackay did not report transaction prices for the rare bulbs immediately after the collapse”, which are the prices one would need to establish the popping of a bubble. Instead he quoted high prices from before the bubble popped, and prices “from 60 or 200 years after the collapse”. But what he found could be consistent with the prices accurately reflecting changes in fundamentals. Why? Because a new & attractive variety of flower might gradually come into fashion (raising its price) and then suffer a glut over time as more bulbs become available (lowering its price).
One can confirm that’s how things normally worked by looking at changes over time in prices long after the bubble. Even in non-bubble times, bulb prices would consistently start high and then fall steadily.
I don’t disagree with those claims, as far as they go, but highlighting a lack of conclusive evidence for a bubble doesn’t mean there wasn’t a bubble. Even Garber’s seemingly damning review of the price data doesn’t mean much, because Garber (like Mackay) fails to quote prices from immediately after the collapse.
What Garber actually does is calculate that tulip bulb prices depreciated by 24%-76% per year over the 5-6 years after the peak. He compares that to the 2%-40% annual depreciation of bulb prices in the next century, says the earlier rates are only modestly higher than the later rates, and so there wasn’t a bubble-indicating deviation from normal depreciation.
But Garber would likely have seen the same thing even if there had been an abrupt bubble pop. Suppose a tulip bulb’s price peaked at 1000 guilders, crashed to 200 guilders within a week, then sank gradually to 100 guilders over the next five years. An economist who, knowing only the start & end points, interpolated to estimate the annual depreciation would (if I’ve done the sums right) get a 37% rate, which gives no sign of the initial crash. Observing a normal depreciation rate isn’t good evidence against a bubble; one has to know prices closer to the event.
Does Garber’s book have those data, or at least a novel argument missing from his papers?
Yes, but it hopefully wakes up people who glibly point at one stock or one price change as proof positive of bubbles: the claim for bubbles is a long-term statistical claim, and cannot be supported by simply going “Tulips!”
I don’t know. Not really interested in taking the time to compare them in detail. Presumably the book form includes much more detail than space-restricted papers.
Given how many people cite Tulipomania as a irrefutable smackdown in these sorts of discussions (‘Bitcoins are worthless—at least you could plant tulips!’), learning that there is minimal evidence for what is popularly considered to be a large, irrefutable, historically established, unquestionable bubble should badly damage one’s confidence in other claims relating to bubbles since it tells one a lot about what passes for evidence in those discussions.
It’s been a while since I read the book, but doesn’t he do exactly that and does compare depreciation from peak prices in places? For example, on pg64 of my copy:
I’d hope so, although I can imagine an academic padding things out with irrelevant side detail or other yakkety-yak-yak. In those cases one may as well stick with the papers.
Not based on that quote. That’s the same reasoning he uses in his papers. (Your quoted bit appears, almost word-for-word, on pages 550 & 553 of the “Tulipmania” paper.) The flaw is the same; estimating a depreciation rate based on data points 5-6 years apart won’t tell you whether there was an abrupt dip that took only a few days or weeks.
It is a good example of why one shouldn’t take people’s claims that something’s a bubble at face value. Although I don’t think the magnitude of the tulipmania has much bearing on whether tech stocks, Bitcoins, or real estate are/were bubbling; for those last three things, there are time series data that’re a lot more relevant than what happened to Dutch tulip bulbs 376 years ago.
(I also wonder whether I updated too much on the basis of one economist’s contrarianism. Really, I went too far in my last comment by referring to “a lack of conclusive evidence for a bubble” — it’s not as if I’ve looked for that evidence. I’ve just taken Garber’s word for it.)
But comparing peak prices to prices years later does tell you that any ‘abrupt dip’ must have been compensated for by other price increases or maintenance of prices. If prices, from the peak, abruptly go down and then abruptly go up, and then follow their usual depreciation curve, that’s not a very bubbly story.
Sure. It drives me nuts how people constantly bring up Tulipomania. Whether or not one agrees with Garber’s findings, it should still be obvious to them that arguing about modern finance based on Tulipomania is like trying to criticize American government based on ancient Greek politics—the sources are bad and don’t answer the questions we want to know, and even if we did have perfect knowledge of what happened so long ago, the circumstances were so different and the world was so different that it can tell us very little about vaguely similar modern situations.
Maybe! I wonder that sometimes myself. But honestly, Tulipomania has the feel of one of those parables which are too good to be true, so I don’t expect a later economist to come along and say ‘everything you thought you knew from Garber is false! yes, the stuff about tulip-breaking virus is false! and tulip bulbs don’t depreciate extremely fast! the futures contracts weren’t canceled! there were no extenuating circumstances like plague!’ etc
I don’t follow. Garber’s data are consistent with the scenario I sketched in the penultimate paragraph of this comment, where I assume away any compensation for the initial dip.
Yeah, Garber’s data are also consistent with an initial rebound.
Fair enough.
Plague? Now that’s something I don’t think he mentions in the papers. (Must...resist...urge to borrow...yet another...book.)
No, you don’t. You bury it in the ‘sank gradually’ part:
You can get an abrupt pop inside an normal-looking beginning/end comparison if something compensates for the pop, like another rise (unlikely) or prices then falling slower than they normally would (‘gradually’). The ground lost in the pop is then made up later.
His book’s capsule summary of that bit goes
It’s the topic of chapter 5, “The Bubonic Plague”.
(It’s on Libgen, and isn’t a very long book.)
Ohh, I see what you’re getting at. I’d interpreted “compensation” more narrowly as something halting or outright reversing the fall in prices, not merely decelerating it.
Yeah, my scenario implies an unusually slow price drop after the initial speedy crash. That wouldn’t surprise me in the wake of the unravelling of a self-fulfilling speculative mania.
Good to know, thanks. Added that to my mental things-to-look-at-on-a-rainy-day list.