Financial Crises & Tulip Mania

• Recurring financial crises are a regular feature of capitalism, not rare accidents.
• "Those who cannot remember the past are condemned to repeat it."
• Speculation is driven by greed, optimism, and misinformation
• Bubbles develop in predictable stages: stealth → awareness → mania → crash
• Crashes often follow widespread borrowing, misinformation, and "mania money"
• Leverage (borrowing to invest) increases exposure to risk
• Lack of liquidity during crises forces panic selling, deepening crashes.
• Markets and financial tools evolved from medieval markets to joint-stock companies and stock exchanges
• Introduction of bills of exchange, marine insurance, and early banks laid the foundation for global capitalism
• State support has been crucial in enabling large-scale speculation
• Government bailouts set long-term precedents

Tulip Mania (1630s - Netherlands)

• Tulips became luxury goods and prices surged absurdly
• By 1637, prices crashed: speculators ruined, market confidence shattered.

South Sea Bubble (1720 - Britain)

• Investors traded government debt for shares; boom built on hype and corruption
• King George I was involved, ending in crash, bribes, and restrictions on joint-stock companies.

Mississippi Bubble (1720 - France)

• John Law introduced paper money and speculative shares
• It burst due to overissuance and inflation; Law fled France in disgrace.

British Railway Mania (1840s)

• An investment boom occurred within rail infrastructure
• Unchecked speculation, bad planning, and over-leveraged investors led to a crash.

Latin American Bond Craze (1825)

• British investors rushed into risky new nations
• Fraudulent schemes and Spanish default led to widespread bank failures

Panic of 1857 (Global)

• Triggered by railroad collapse in the U.S. and spread to Britain and Europe
• Demonstrated dangers of discount houses, low reserves, and overconfidence in central bank bailouts

Panic of 1792 (U.S.)

• An early U.S. banking crisis occurred during the First Bank of the United States
• Hamilton intervened with one of the first federal bailouts

Bubble Lifecycle

• Stealth phase: Smart money enters
• Awareness: Media interest increases, and more investors arrive
• Mania: Public frenzy occurs, with irrational buying
• Peak: Smart money exits quietly
• Crash: Confidence collapses, leading to a mass sell-off
• Despair: Late investors lose everything
• Aftermath: Blame is placed on isolated players, with calls for more regulation or state support.
• Bank failures were common in the U.S. from the 1870s to the 1930s
• Panics of 1873, 1893, and 1907 revealed systemic weaknesses in banking and led to the creation of the Federal Reserve in 1913
• Trust companies and speculators played key roles in crises, often overextending credit or committing fraud.
• The 1907 Panic was caused by failed copper speculation; J.P. Morgan stepped in to save key institutions in absence of a central bank.

Rise of Big Business & Trusts

• There was growth of monopolies and cartels (e.g. Standard Oil, U.S. Steel)
• Concepts like vertical and horizontal integration and limited liability solidified corporate power and reduced competition
• A managerial revolution replaced small entrepreneurship with professionalized, profit-driven management.

Global Expansion & Empire

• Capitalism grew across Europe, North America, and into colonial markets via trade and industrial empires
• Case studies include German conglomerates (Thyssen, Krupp), Japanese zaibatsu, and British giants like Lever Bros and Guinness

Inequality and Wealth Concentration

• The top 1% in the U.S. and Europe owned a disproportionate amount of wealth
• Industrialists like Carnegie, Rockefeller, and Morgan became symbols of excess and corporate dominance

War as Economic Catalyst

• WWI accelerated industrial production, centralized economies, and government control like rationing, national factories, and taxation
• War disrupted global trade and left countries in massive debt, altering postwar economies

Consumerism & Credit in the 1920s

• The 1920s saw the rise of consumer culture, fueled by advertising, mass production, and buying on credit
• Innovations like Fordism (assembly lines + consumer wages) and Sloanism (planned obsolescence) shaped capitalism

Stock Market Bubble & the 1929 Crash

• Rising stock prices were disconnected from real value
• Buying on margin (credit-based investing) was widespread
• The market crashed in October 1929, losing over 90% of its value by 1932, leading into the Great Depression

Panic of 1873

• Rail overinvestment caused bank failures and depression

Panic of 1907

• Copper speculation led to collapse of trust companies

Rockefeller's Standard Oil

• Controlled 90% of U.S. refining through horizontal integration

Carnegie/U.S. Steel

• The world's largest steel company used vertical integration

Guinness & Mond

• Used science, tech, and management to build massive firms

Great War (WWI)

• The war economy drove state control; post-war debts burdened economies

Florida Land & Ponzi Scheme (1920s)

• Get-rich-quick scams primed the public for unsustainable investing

Wall Street Crash (1929)

• It burst a speculative bubble, erased billions, and signaled the Great Depression

The Illusion of the Roaring Twenties

• Beneath the consumer boom were debt, inequality, overproduction, weak global trade, and speculative bubbles
• Many workers and farmers never shared in prosperity
• Structural weaknesses, not just stock speculation, set the stage for economic collapse.

The Great Depression

• Triggered by the 1929 U.S. stock market crash but quickly spread worldwide
• Unlike earlier recessions, the Great Depression lasted over a decade and industrial output, trade, and employment collapsed globally
• Overproduction occurred in industry and agriculture
• Low wages caused underconsumption despite high productivity
• The top 1% earned nearly 20% of the national income
• Buying on margin, stock speculation, and excessive borrowing occurred
• 43% of U.S. banks failed, though none did in Canada
• Stock values fell by 90% from 1929 to 1932
• The Federal Reserve failed to provide enough liquidity
• Governments raised taxes and tariffs, like the Smoot-Hawley Act, worsening trade declines
• Tight adherence to the Gold Standard spread monetary contraction
• Unemployment rates in the U.S. were 25%, Canada 30%, and Germany 40%
• Food insecurity, homelessness, and mass migration occurred like Dust Bowl refugees
• Strikes and protests increased globally, and GDP dropped 15% globally
• Mass layoffs, bank failures, and farm foreclosures occurred
• New Deal policies by FDR aimed to stimulate demand but had limited early success, with recovery delayed until WWII
• Canada suffered from falling commodity prices
• Relief spending was modest, and unemployment exceeded 30%, with PM Bennett's proposed “New Deal” being ruled unconstitutional
• Germany experienced harsh austerity, deflation, and rising unemployment
• There was the collapse of major banks, with economic despair fueling the Nazi rise in 1933
• There was less boom in the 1920s in Britain, so a slower but longer depression occurred
• Northern industry was devastated; southern areas saw modest recovery
• Latin America saw a sharp drop in exports, leading to Import Substitution Industrialization
• Africa had crashed commodity exports causing job loss with tax burdens increasing unrest
• Japan recovered by abandoning the gold standard and adopting stimulus and China was less affected due to limited global integration

Black Tuesday (1929)

• U.S. stock market crash begins, with $30B lost, equivalent to ~$450B today.

Dust Bowl (1930s)

• Environmental disaster worsened rural poverty and triggered migration

Smoot-Hawley Tariff (1930)

• Raised U.S. tariffs, leading to global retaliation and a trade fell by 66% by 1934

Germany (Weimar Republic)

• Austerity & reparations lead to high unemployment which leads to a rise of extremism

Japan (1931+)

• Abandoned the gold standard early, leading to monetary stimulus that helped recovery

Canada - Bennett's New Deal

• Proposed reforms were rejected by courts; recovery only came during WWII

Latin America (Brazil)

• A coffee oversupply crisis caused 60M bags burned or dumped into the ocean

Keynesian economics

• Depression is caused by low demand so the solution would to be government spending & job programs

Monetarist economics

• Depression was worsened by shrinking money supply, the FED should have intervened

Debt Deflation (Fisher)

• Debt burdens worsen as prices fell creating a downward spiral

Austrian School economics

• Boom was caused by loose credit in the 1920s, so Depression was seen as necessary purge of the economy

Expectations Theory

• People's confidence has an impact on economy, Roosevelt's tone change helped recovery

Economic Outcomes

• Exposed the limits of laissez-faire capitalism
• Sparked global shifts toward economic regulation, social safety nets, and macroeconomic policy (Keynesianism)
• Became a symbol of capitalist failure for generations

The Keynesian Revolution

• Challenged classical economics' belief that markets self-correct
• Emphasized aggregate demand as the driver of economic stability
• Advocated government intervention to stimulate demand and avoid recessions

War as Proof of Concept

• WWII acted as a real-world demonstration of Keynesian principles
• Massive government spending ended the Depression and spurred industrial growth
• Post-war consensus was that governments should maintain economic stability and full employment

Welfare State Expansion

• Inspired by the Beveridge Report (UK) and Marsh Report (Canada)
• Resulted in the creation of unemployment insurance, pensions, family allowances, veterans' benefits, and public healthcare and education

Post-War Economic Boom (1945–1973)

• Known as the “Golden Age of Capitalism", there was high GDP growth with low unemployment and inequality
• Keynesianism became the dominant economic model across Western democracies

Global Economic Planning

• The Bretton Woods system created the IMF, World Bank, and GATT to stabilize international trade and finance
• Programs like the Marshall Plan helped rebuild Europe and promoted liberal capitalism
• Military Keynesianism kept public money flowing

Consumer Culture & Infrastructure

• Keynesianism fueled a consumer boom: cars, homes, malls, appliances
• Government invested in roads, seaways, airports, and suburbs

Keynesian Cross Model

• Shows how equilibrium income is based on aggregate demand matching output

Beveridge Report (UK)

• A blueprint developed for a post-war social welfare state

Marshall Plan (1948)

• U.S. aid was used to rebuild Europe and support capitalism abroad

Veterans' Benefits

• The GI Bill/Canada's Charter provided public investment in education, housing, and jobs for returning soldiers

Suburbia

• Levittown and Don Mills was a symbol of mass consumption and Keynesian prosperity

Fordism + Sloanism

• Mass production + consumer credit created stable industrial jobs and demand

Post-war economic growth was experienced

• Canada, U.S., and Western Europe grew at 4–5% annually with few to no recessions and with highest sustained global growth ever recorded

Economic Outcomes

• Low unemployment, often under 5%, even 0.5% in West Germany
• Rising wages with real wages and productivity both growing significantly
• Less Inequality as Redistributive policies helped support a growing middle class
• There was significant investment within Infrastructure & Innovation with public spending rising to >20% of GDP in many nations

Economic Shift

• The shift to neoliberalism and monetarism is framed as a political and ideological choice, not an economic necessity

Keynesian economics (1970s)

• Keynesian economies faced challenges with rising inflation and unemployment
• There was a collapse of the Bretton Woods monetary system and the model struggled to explain and address stagflation

Rise of Monetarism & Neoliberalism

• Milton Friedman and Friedrich von Hayek championed monetarist and free-market solutions
• It was argued that Inflation is caused by excessive money supply and Unions and wage supports disrupt “natural” economic order
• Monetary policy became central, especially under Paul Volcker with record interest rates, balanced budgets, low taxes, privatization, and deregulation
• The focus shifted from collective welfare to individual responsibility

USA during this shift

• Nixon ended the gold standard and Volcker's high rates sparked recession

UK during this shift

• Thatcher dismantled union power, imposed austerity, and deepened inequality

Canada during this shift

• There were wages and price controls and debt was blamed on spending, but caused by falling revenues and rising interest

Chile during this shift

• “Chicago Boys” imposed radical neoliberalism post-coup causing a GDP increase but wages also increased

Bretton Woods Collapse (1971)

• Nixon ended dollar-gold convertibility leading to floating currencies

Oil Shocks (1973 & 1979)

• OPEC embargoed causing oil prices to quadruple which caused inflation and recession

Wage & Price Controls

• Government tries to restrain inflation but sparks protests

Volcker Shock (1979–81)

• U.S. interest rates were raised to near 20% which crushed inflation but caused recession

Intellectual Shift in Economics

• Robert Lucas declared Keynesianism "dead" with emphasis on individualism and anti-government sentiment
• This shift was viewed was reactionary, prioritizing capital over people, while neoliberalism was produced rising inequality with shrinking middle class
• Questions linger: Why abandon Keynesianism during its success and did monetarism solve the problems it blamed on Keynes?

1980–1992: Neoliberal Developments

• Economic policy shifted toward free markets, deregulation, tax cuts, and austerity, primarily in the U.S., UK, and Canada
• There was "four pillars of Reaganomics" that included tax cuts, reduced social spending, deregulation, and increased military expenditure.
• The Laffer Curve supported tax cuts for growth, though real results included a tripled U.S. national debt
• The Thatcher focused on union suppression, privatization, and personal responsibility

Early recessions

• The 1980–82 recession was caused by high-interest rates to fight inflation
• The 1990–92 recession was marked by jobless recovery in U.S., UK, and Canada

Savings & Loan Crisis (U.S.)

• A deregulated financial sector led to risky loans, fraud, and over 1,000 bank failures with a government bailout of $150B
• Junk bonds, leveraged buyouts (LBOs), and hostile takeovers flourished
• Michael Milken made billions before scandal and conviction

1987 Market Crash

• "Black Monday” saw Dow fell 22.6% in one day and global markets also crashed, and was possibly sparked by automated trading and fears of excessive debt

Global Spread of Neoliberalism

• Canada followed the U.S. lead with tax cuts, deregulation, GST introduction, and FTA with the U.S. while the UK saw recession, rising poverty, and inequality under Thatcher's austerity

Economics in Australia & NZ

• "Economic rationalism” & “Rogernomics” adopted neoliberal reforms

Finland

• Deregulation, foreign borrowing, and USSR collapse triggered a 1990s banking crisis that resulted in GDP collapse

Japan

• 1980s asset bubble burst in 1991, initiated Japan's "lost decade"

China

• Carried out market reforms under Deng Xiaoping and maintained communist political control

Event/Policy - Reagan Tax Cuts

• Saw massive reductions for top earners, as cooperate tax dropped to 34%

Savings & Loan Crisis (1980s)

• Over-leveraged institutions collapsed after deregulation

Junk Bonds & LBOS

• Caused instability and used tools for for aggressive corporate takeovers

1987 Stock Market Crash

• This triggered a global panic and revealed the fragility of deregulated finance

UK ERM Crisis (1992)

• Britain was forced to devalue pound and unemployment rose labeled as “Black Wednesday."

Canada's 1990s Jobless Recovery

• Was caused by recession, tech change, FTA job losses, and weak social supports

China's Reforms

• Gradual, state-led shift to a market economy which saw as boom in trade and industrial output
• Increased inequality and precarity in Western economies
• Recurrent financial instability due to deregulation and speculative finance

1990s shift of Economic views

• Neoliberal model seen as efficient by elites, but devastating for lower-income groups
• Recessions were common again, despite promises of stability and growth

Neoliberal Globalization and U.S. Triumph

• In the 1990s, U.S.-style capitalism and neoliberalism were seen as victorious, symbolizing a push for open markets and global integration
• Privatization, deregulation, and austerity became the dominant global prescriptions

Other Key Facts

• prosperity was uneven, and many countries with primarily the Global South, faced crises and stagnation
• Deregulation occurred from Derivatives and speculative financial products which grew without regulation

Other Key Facts

• There was global capital mobility, trade of currency traded at $1.5 trillion/day vs. $25 Billion/day in goods

Mexico's 1994 Tequila Crisis

• There was devaluation and banking collapse after NAFTA optimism

East Asian Tigers

• Thailand, Indonesia, and South Korea were hit hard and IMF rescue plans imposed high interest rates and austerity, worsening conditions

Russia 1998

• Saw Ruble collapse, default, and bailout of Long-Term Capital Management
• There was a rise of junk bonds, leveraged buyouts, and real estate bubbles defining the 1990s

Uneven Global Growth

• The West gained, but developing nations struggled while China and India began market reforms and faced stagnation

NAFTA (1994)

• U.S.-Canada-Mexico free trade deal that promoted neoliberal integration

Brady Bonds

• Converted developing country debt into marketable bounds which stabilized Latin American economies

Asian Financial Crisis (1997–98)

• Currency and markets collapsed in Thailand, Indonesia, and South Korea causing devastation

Russia 1998 Default

• Devaluation, banking crisis, and collapse of government finances

Global Regional Snapshots

• Argentina, Venezuela, Brazil suffered from inflation, debt, and IMF-enforced austerity
• Mass privatizations occurred with crises costing up to 30% of GDP in some nations
• The largest 20% of the global population earned 75% of global income, and roughly 50% of people lived on less then $2 a day

Post-Soviet and China Growth

• Post-Soviet reforms led to plunging GDPs, hyperinflation, and poverty and oligarchs emerged as key beneficiaries with explosive growth in manufacturing
• In Canada and the U.S., full-time jobs have declined. As economic growth has occured, inequality deepened, especially for women, minorities, and low-wage earners

Economic Growth

• There was economic growth with GDP and employment growing during the 1990s and a new economy myth emerged
• Inequality worsened, and speculative bubbles grew, especially in tech and housing

The Dot-Com Bubble

• Driven by tech boom with over-valuation of startups, which saw high growth of internet companies NASDAQ
• The crash saw trillions disappear in losses with only a handful of survivors (Amazon, eBay, Craigslist) with a new wave of corporate fraud coming soon

Economics after 9/11

• 9/11 attacks shut down markets, caused major economic loss that spurred recession fears
• The government responded with tax cuts and lowered interest rates that fueled the next bubble, and new corporate fraud was also created (Enron & Madoff)

Economics within Housing (2008)

• Deregulation, subprime lending, and mortgage-backed securities led to a real estate boom
• Banks took on massive risk and home owners borrowed heavily against inflated home values
• Eventually, housing prices fell and foreclosures surged causing a crisis

Key moments

• Bear Stearns and Freddie Mac were bailed out and Lehman Brothers was allowed to fail
• There was approval of the approval of a tax break (TARP)

Madoff Scandal

• Ponzi scheme worth $65B which was exposed during the 2008 crash, and Subprime leading and mortgage securitization was also introduced

2008 Crash

• Lehman collapsed along with global bailouts and unemployment rose nearly 10 percent
• There were efforts in an attempt to keep the economy buoyant

Global Economies

• Europe saw recession, where Asia and developed nations saw a decline in the economy
• Corporate profits soared, income shifted to wealthy, inequality increased, and the average wealth per person decreased

Financial Economies

• Massive bailouts saved banks and the middle class still took a major hit
• As governments began to regulate systems, low trusts of financial systems persisted

Recovery & Risk

• There was recovery with some economic growth but slowed due to political restraints and policy
• As China and India were beginning to climb into global prominence, many issues were apparent with the economy

Economies by Country

• India was growing at high speeds, however, China was slowly becoming a global economy
• As unemployment slowly dropped due to market forces, there was an increase in company debt

Economies by Recession

• Greece had some intense austerities, while Germany saw a harsh recession
• In order to stop economic issues from being more violent, countries created an official team

Shift in crypto

• Bitcoin rose dramatically and has now crashed, but many people still believe in the technology
• There was corporate debt on the rise with low financial regulations

Back to Risk

• Corporate debt soared higher than it has ever been before which many consider “worthless
• As many issues were brewing at a boiling point, COVID triggered many economic collapses

COVID and Economy

• Markets crashed, unemployment rose, market supply stopped, and many governments stimulated world by adding capital
• There was increased automation and less of the traditional way of life
• Major countries and trade partnerships were dissolved

Trends after COVID

• There’s a push to support local business
• Major issues:
• Brexit
• Tariffs
• Some businesses are being seen as unsustainable

Early Examples of Economics

• The roots of financial speculation and economic instability go back centuries, with the first historical bubble occuring in the 1630s in the Netherlands
• As time continued and the world adopted new economic policies, the US experienced problems and created a Federal Reserve in 1913

The Rise of Governments

• After and during World War I, governments took control of markets and the US entered an era of boom that was driven by stocks/credit

The Great Depression

• Spun out through the 20th century and caused the markets to crash with rising unemployment
• As banking rose and spending decrease, the world saw the greatest hardship in the modern century

Keynesian Booms

• Believed that it was the responsiblity of goverments' to increase spending to help boost economy, which ended up helping the middle class and helping equality rise

Challenging Keynes

• People like Milton believed that a monetary system should be the solution for the world
• Though unemployment was curbed, there was mixed results and a large amount of debt still accrued

Greed and History Lessons

• History demonstrates and teaches the world that greed cannot be the primary motivating factor for any system.
• Overconfidence and regulatory failures amplify systemic risks and inflate markets

Examples of the Pattern

• Irrational Exuberance inflates markets.
• Loose lending and deregulation amplify risk.
• Crashes hurt the many, while gains are concentrated.
• Governments often bail out large firms, but not households.
• These things call for sound regulations and balanced monetary/financial systems