Speculation is a round game; the players see little or nothing of their cards at first starting ; gains may be great - and so may losses. The run of luck went against Mr Nickelby. A mania prevailed, a bubble burst, four stock-brokers took villa residences at Florence, four hundred nobodies were ruined, and among them Mr Nickelby

Charles Dickens,
'Nicholas Nickelby'

The above scenario was sketched by Dickens in 1839, in a time and social context seemingly remote from modern Ireland. It describes a fictional speculative venture which collapses, enriching just its few shrewd sponsors while bankrupting hordes of gullible investors. Dickens' words may be 170 years old, and accessible only to the dwindling band of devotees of Victorian literature, but the picture he paints has a shocking contemporary resonance in the beleaguered Ireland of 2009. For the 'mania' described by Dickens, read the Irish property frenzy of the last 10 years; for 'bubble burst', read the insane growth and inevitable collapse of property values; for 'four stock brokers' with 'villa residences in Florence', read the bankers, developers and politicians who will survive this catastrophe with their vast private wealth largely intact ... and for 'four hundred nobodies', read the rest of us, the perennial losers in the high stakes game of economic madness that was the Celtic Tiger.

The prescience of Dickens' description may have a startling immediacy, but the most telling point to be made here is this: Dickens, and many others, including economists, politicians and sundry other thinkers, have known for centuries of the inherent 'boom-bust' nature of speculative economic activity, whether relating to property or to other commodities.

We are, in other words, not entering uncharted waters here. Economic history is littered with examples of economic bubbles which burst with devastating consequences for ordinary investors.

These examples range from well known historical cases such as 'the South Sea bubble' in the 18th century and the 17th century 'Dutch tulip mania', to more recent disasters such as the 'Asian financial crisis' of 1997 and various recent property bubbles across the world.

While the circumstances of cases differ, many share certain salient features: overinflation of asset values on foot of hype and easy credit, followed by the inevitable deflation of such values with all the mayhem which that brings.

The Japanese 'asset price bubble' of the late 20th century is a good recent example of what can happen. In the late 1980s Japanese property and stock prices inflated hugely. Unrealistic expectations and easy credit helped create a real estate bubble which ineviably collapsed, leading to Japan's 'lost decade', a prolonged and savage affair, with residential homes in Tokyo dropping to a fraction of their peak valuation and billions of dollars wiped out with the collapse of the Japanese share and real estate markets. It is a textbook example of the pathology of the 'bubble market'.

The examples mentioned (and many others) provide ample evidence of the dreary, and drearily predictable, cycle of frenzied asset overvaluation followed by rapid, catastrophic asset devaluation inherent in the typical 'economic bubble'. The phenomenon is a well established and well documented feature of economic history, known to all economics undergraduate students (including my own daughter whom I consulted in the preparation of this piece!). All one has to do is Google the phrase 'economic bubble', or 'speculative mania' or any of a dozen other similar phrases to unearth a wealth of historical and theoretical analysis of the phenomenon. This analysis is replete with explanations of the causes and descriptions of the effects of such bubbles. The most forensic definition of a bubble I found is "trade in high volumes at prices that are considerably at variance with intrinsic values". Sound familiar anyone?

This knowledge makes it all the more incomprehensible, therefore, how and why Irish economic policy was conducted as it was for the last decade or more. It is clear now (and to be fair, was clear to many of us at the time) that the so-called economic miracle of the Celtic Tiger era was predicated, overwhelmingly, on an assumption of an ever rising property market, fuelled by unbridled growth of bank credit. A large proportion of official economic policy seems to have ridden on the shaky dice of continued property price appreciation. The curve was assumed to be eternally upward, in defiance of the basic lessons of history, economics and common sense. Our best brains, our thrusting Tiger Cub politicians, our lavishly 'compensated' bankers, stockbrokers and consultants, our media business cheerleaders, none of them could grasp a simple lesson which was obvious to a long dead Victorian novelist: in economics, as in life, what goes up must come down.

Tragically, as always it falls to the little people, Dickens' 'four hundred nobodies', to pick up the pieces.