There are three necessary conditions for a fire to start – oxygen, heat, and fuel. The same can be said for financial bubbles. In order for them to happen, three conditions must be in place.

In his book, Boom and Bust: A Global History of Financial Bubbles, economic and financial historian William Quinn lays out what those conditions are in what he calls, “the bubble triangle.” At Queen’s University Belfast, he’s a senior lecturer in finance and researches historical stock markets, stock market bubbles, and market corners.

William and Greg discuss the three sides of the bubble triangle, how narratives in the media shape bubbles, and historical bubbles that have gone overlooked.

*unSILOed Podcast is produced by University FM.*

Episode Quotes:

The bubble triangle

04:43: We came up with this model, which we called the bubble triangle. And this is similar to the fire triangle in chemistry. (05:20) So it's also got three sides. The first side is now what we call marketability, which is similar to liquidity. So, how easy are assets to buy and sell? This is multi-dimensional. So, what are the laws surrounding how easy it is to buy and sell this asset? How divisible is it? Can you package it up and sell it in small quantities? What are the transaction costs involved? What are the legal costs involved? Does anything have to physically change hands to buy it? And what we find is that the more marketable an asset is, the less work you have to do to buy and sell an asset, and the more likely it is to experience a bubble.

The two things you can take away from economics

29:35: I love historians. I love history, and I love history books. What I think they could take from economics is rigor and formal reasoning. So, for an economist to say that one thing caused something else, they will need to set out a counterfactual.

All markets are political

31:43: All markets are political to some extent, and it's not enough to say, "Look, these prices are being propped up by the government; therefore, there's going to be a crash." You need to make the argument that that can't go on, that this political interference isn't sustainable. And that's why prices are going to fall, but it's very difficult.

Looking at three sides of the bubble triangle

22:40: We look at the three sides of the bubble triangle. So is there a lot of money? And right now, there is a lot of marketability. Is marketability increasing? There is a lot of speculation, and right now, these conditions are in place, so we're going to get a lot of bubbles in the near future.

Show Links:

Recommended Resources:

Guest Profile:

His Work:

Boom and Bust: A Global History of Financial Bubbles

276. The Bubble Triangle feat. William Quinn

unSILOed with Greg LaBlanc