The Timber Bubble That Burst: Government Policy and the Bailout of 1984

The Timber Bubble That Burst: Government Policy and the Bailout of 1984

The Timber Bubble That Burst: Government Policy and the Bailout of 1984

The Timber Bubble That Burst: Government Policy and the Bailout of 1984

Synopsis

This is a book about bubble prices, and their consequences, in the timber industry of the Pacific Northwest from 1979-1984. Bubble prices--unusual and rapid rises (and eventual drops) in the prices of a commodity--have been of theoretical interest to economists for many years. This study examines the unusual movements in the price of federal timber and the subsequent recession in the Northwest when timber buyers delayed harvests in order to postpone the realization of their losses on the contracts. Mattey argues that it was not so much the actions of the Federal Reserve, which had been widely blamed for the crisis, but rather the actions of the buyers themselves that caused the recession.

Excerpt

This book examines one particular microcosm in which the government plays a large role, the market for federal timber in the Coastal Pacific Northwest. When read literally, the book is about an unusual episode in economic history, a bubblelike movement in federal timber prices that led to a massive buyout of federal timber contracts by the forest products industry. When read as a parable, the book provides more general insights into the effects of government policy on private business decisions in the United States.

The book considers two competing paradigms of thought about the relationship between government policy and private sector behavior:

1. People are very sophisticated about macroeconomic policy, and there are no microeconomic distortions to prevent achievement of an efficient, competitive equilibrium.

2. People are essentially blind to macroeconomic policy developments but very sophisticated about how to take advantage of microeconomic distortions.

The book argues that the second paradigm is closer to the truth.

Chapter 1 introduces the reader to the market for federal timber and the timber contract crisis. Chapter 2 tries to explain timber price movements in the context of the first paradigm -- timber buyers are responsive to macroeconomic policy developments, but in the early 1980s the macroeconomic environment changed so radically that they were fooled temporarily. the third chapter tries to explain timber price movements in the context of the second paradigm -- timber buyers are responsive to microeconomic distortions created by federal timber sale policies, and in the early 1980s these distortions encouraged the buyers to take great risks on timber contracts.

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.