Bubble Problem

TROUBLE WITH A BUBBLE

There are many reasons, why Fisher had reason to believe the stock prices were to continue to rise. Firstly, the era of 1920’s is known as the second industrial revolution. Many entrepreneurs invented new highly technological products positively affecting not only company’s effectiveness but also people’s way of living. To name only a few: automobile, telephone network, radio and motion picture. To enhance the importance of technology even more, science was no longer seen as research field only, but as a business itself. Secondly, for technology being effective, managers realized that they have to improve their skill for organizing the company. This fact was not only realized but implemented effectively. This leads to the third and most important point, why Fisher believed the stock prices were on a continuously high plateau: the society realized that an important factor for successful economy is treating your employees well and reward them (not only with salary increases) for their work. This led to more staff loyalty. The fact of decreasing labor disputes number and strikes, was Fisher’s main argument for increasing stock prices. To sum up, all in all the mass production, the fresh managers skills and the new way of treating employees, led to higher prosperity. This, to continue, caused people to get richer and to increasing sales of luxury products. All the factors mentioned above were the reason for extreme consumption, which in return forced a dangerously fast economic growth. A crash is always triggered by many factors. Also the one in the late twenties had many issues influencing its surge. One point is that too many stocks were newly issued. However, too few experts existed to evaluate those companies correctly. This fact drove the investors in the situation to speculate. Another reason is that the more people get involved in a surging stock market, the greedier they get, causing a herding effect. Moreover, new trading strategies got...