The video Sunshine and Eclipse is a must see for anyone interested in economic history, and in the psychology of economics in the real world (as opposed to the ivory tower of modern neo-classical economics). The documentary is describing Canada in the period between 1927 and 1934, in other words, in the euphoric phase of the Roaring Twenties bubble and the credit implosion of the 1930s.
It is of far broader interest than Canada, however. It is fascinating to look at the insatiable optimism of the Twenties, the commodity boom, the expansion of trade and the sense that human beings had overcome adversity and created ever-lasting prosperity. In fact, the Roaring Twenties were simply a rediscovery of leverage, as are all credit bubbles.
Bubbles artificially boost demand, bringing it forward in an orgy of present day consumption and profit, at the expense of crashing it for a prolonged period thereafter. Over the very long term credit bubbles are neutral, but on the scale of a human lifetime, they most definitely are not. The impact is devastating as euphoria morphs into fear and then panic, and the real economy freezes over.
Watch in the video how quickly that psychological shift unfolds, how ephemeral prosperity can be and how quickly society can shift into long-lasting malaise. Exporting commodities into the teeth of a bubble is not a guarantee of eternal wealth, as modern commodity exporters are set to discover over the next few years.
Canada is vulnerable again, as is Australia, and other exporters into the current Chinese bubble. So are all those who are betting on continued rises in commodity prices. Just because resources will be scarce in the long term, does not mean that will be true in the short term. Prices can crash and fortunes wagered on mistimed bets can evaporate.
If we do not learn the lessons of the past, we will pay a terrible price for relearning those lessons once it is too late.