The boom and the bust of the market is like the ebb and flow of a stream.
Look at the flow of a stream as consumer demand. It is a constant in some degree, larger at some times, lesser at others; if it dries up, then all around it dies from no water. The mountains and valleys that form the tributaries, that are innovations, which contribute to the flow of the stream and are brought into consumer demand. These innovations, like the flow of water from the mountains out to the sea have their own birth, life and death as they form on their way to the stream, flow with the stream until the stream expels it out to the sea; e.g. the Model T being built, mass produced, and then phased out - replaced. There is one more part to consider, and that is the dam – the marketplace. The marketplace is where consumer demand builds, the various innovations are available for various consumers; it pools the innovations, yet also provides an outlet to expel that which is no longer desired in the market, such as the Model T being ousted from the marketplace when newer, better autos became available.
The marketplace, in conjunction with consumer demand and innovation regulates itself. When a new innovation is available, such as Ford replacing horse buggies, others seek to participate in the demand, and General Motors among other auto manufacturers add their own in their tributary to the stream of consumer demand. The level in the dam rises. Eventually, the dam rises too much, there is too much input and the release is increased flushing out the excess. The beginning is when prices are high with lesser supply but higher demand; the middle is where more supply is offered by those seeking to profit off the demand; the end is when there is more supply than demand and prices are at their lowest. There is no boom, no bust, just small fluctuations.
It’s an efficient system, and takes care of itself with its cycles, its ebbs and flows. However, there are ways of messing up the system, and the biggest way is through governmental influence introducing artifice into the marketplace; it is by an outside influence altering the cycles, and that only can bring problems for the marketplace and all those who are in it.
For example, the government may influence it in two main ways: trying to stimulate production, more of what comes from the tributaries; controlling the consumption, that is regulating the release of the dam.
Through stimulating production, the State is giving that which isn’t otherwise marketable a false place in the market, siphoning water from one route that produces more and routing it to a dead zone, such as re-routing a creek from an area of lush vegetation so that parched earth may get wet; the lush vegetation suffers, while the parched earth gets wet, and may eventually produce something, but not as much if the water went to grow that which was already growing. An example here is how much was lost across the planet for ‘green’ jobs. They may be marketable at some point, but now they’re not: see Solyndra.
Through controlling consumption, the State is blocking the release of the dam and not letting the prices change to how the stream dictates. This release control is done in two ways: stopping the release, or forcing the release to be too much. Keeping the release open beyond what the marketplace desires keeps the price too high, and as its too high to stay in the marketplace, it quickly goes out and the marketplace doesn’t built; consumers don’t consume as much and this can be seen in minimum wage laws, licensing fees and other regulations that increase the cost of business but do not actually contribute to the process of business.
This brings us to the most damaging part, and that is when the release of the dam has been jammed shut, and the marketplace just builds. This is the bubble that will burst. Without a release, the marketplace gets flooded with goods with higher prices than what the market says it should be. It wants to expel the excess, but it can’t because the State blocked the release. So, more builds in the marketplace, and it continues to build; the housing market is an example of this. The demand for houses was high, and the prices were rising so more got into the housing market. The more that enters the market, the more the prices should go down; the release should be triggered. However, with the blocking of the State, the marketplace couldn’t get rid of the excess so it only grew. Things can only grow for so long; if the dam doesn’t break altogether, it will overflow. That is the burst bubble. The market is correcting itself and trying to get the prices to where they should be. With the artificially high prices being what was invested in, those are the prices people agreed to, but after the correction began, and the real market value comes to the fore is when people lose their equity.
Those are the only things the state can do in the marketplace. Stimulate that which the market says isn’t ready to be marketed in one of three ways, or worse and compounding, blending the three. If the marketplace was left alone, the basic fluctuations of supply and demand would take care of it self; with the interference of the State, bubbles are created and great amounts of wealth are lost.
Let’s keep the government in its proper place: protecting individual rights. When it tries to get into the field of business outside of rights violations, it will only hamper the market.