Friday, September 14, 2012

Who Am I To Tell It's a Bubble?

First, allow me to set the record straight and lay the groundwork for this blog:

  1. Financial bubbles are notoriously difficult to detect before they actually burst.
  2. I do suffer somewhat from a "pessimism bias" when it comes to the current world economy. This is mainly due to the high levels of public and private indebtedness, especially in the developed world.
  3. I currently live in Oslo and have lived here for three years. I do not have a Norwegian passport.
I admit that suggesting there is an economic bubble in Norway is provocative and sounds like a marketing plot to gain more attention than I might gain with a title like "Norwegian Economy". And in a sense it is just that. But it is also a wake-up call, an attempt to state it clearly: "Be careful, because the future might not be as rosy as you think!".

I actually first thought of naming this blog "The Norwegian Gamble". This because I think in the end the whole thing comes to the price of oil which is not decided by Norwegians. If oil price goes down enough, new oil extraction and exploration projects will be postponed / cancelled, the windfall profits of oil industry will disappear and Norwegians will find out that they had been living in a (housing and living standard) bubble which is now deflating.

At this point I don't want to go further into detail regarding why the oil price might fall significantly. I think it is safe to just assume that it might happen, since we have seen it happen in 2008, and already in 2012 we have seen a huge rise in oil price volatility, with the price falling sharply just to rise as sharply again. I see that there are at least three relevant forces affecting it: a weaker global demand (pulling the price down), a stronger supply through new extraction methods and new fields (pulling the price down) and geopolitical tensions (Iran-Israel-USA) (pushing the price up).

Even if we didn't currently have an economic bubble in Norway it is fairly safe to say that Norway will have enormous difficulties with avoiding a bubble developing in the future. This is because it actually doesn't matter that much if the current optimism is based on solid arguments and forecasts - too much of a good thing is just too much. Human kind has shown time after time that it is nearly impossible to avoid these bubbles.

There is a huge amount of exuberance in the Norwegian economy at the moment, and to me it seems that it's of the irrational type of exuberance. It is very hard to avoid the signs of over-heating and bubble-inflating, be it in housing, cars or overall consumption. It is these signs I plan to discuss here in the coming weeks and months.

I wish this blog would be of value mainly to two different types of readers: a) Norwegians who appreciate a non-Norwegian's view on their economy, and b) non-Norwegians who have a stake in the Norwegian economy through investments. I have not run into that many publications on the Norwegian economy in English, so I hope this blog would be a small addition to this - in my opinion - needed discourse.

The Neverending Party? (graph from Statistics Norway)


  1. nice blog, read all the posts, couldn't agree more. keep it up!

  2. Jan EirikMay 02, 2013


    Just came over you blog. Very interesting reading. Keep it up !

  3. Congratulations for your fantastic blog. I cannot wait for more posts! Great job.