That financial markets sometimes go off on one has been noted for centuries now. Dutch Tulips, the South Sea Bubble, Dotcom and more recently Bitcoin have all shown that the lust for easy speculation profits can lead to, well, to financial excess at minimum. Those with an orderly cast of mind like to point out that all of this is waste. If instead the truly wise and clever people – after we’ve installed them in government or at least the bureaucracy – could apportion society’s assets very much better. You know, truly invest in the diversity advisers civilisation so badly needs.
The thing is, economists often disagree at this point. Sure, financial bubbles, they occur. Sure, there’s waste in them. But perhaps the very bubble itself is an either useful or necessary part of the process.
Necessary in that perhaps it needs a mania to get some new technology over the finish line. I tend to think it’s not going to happen with Tesla but it did with Railway Mania. Without speculators searching for easy money the network never would have been built out. Without Dotcom Amazon probably wouldn’t have got funded through the decade it was scratching a living.
It’s also possible that it’s just useful. For the overbuilding in the mania might then leave assets that are repurposed to get other technologies over that finish line into general use. Global Crossing lost a fortune – no, really billions – on building out fibre optic cabling to girdle the world. Which was, after the bankruptcy, bought up by the Googles and the like to carry all this web and video stuff. It’s arguably true that without the previous overinvestment we’d simply never have developed – or perhaps not for decades – such resource and bandwidth-hungry hogs.
Tim Worstall, “Cloud Rendering – The Latest Proof That Investment Bubbles Actually Work”, Continental Telegraph, 2019-03-17.
February 2, 2024
QotD: Financial bubbles
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