Location: Columbus, Ohio, United States

Saturday, November 15, 2008

Why Bubbles Rock!

This isn't an original thought to me, but it's an important one:
Bubbles are good.
We tend to think of bubbles as a market failure. It's an irrational overallocation of money in one area. Yeah, that's true.
Some guy who crapped on a log in 1998 and thought he would make a fortune with was an idiot. Same with someone who paid $450K for a ranch in Columbus, OH or the guy next year who sinks a ton of note into some BS "green company" with poor management, planning, and vision.
The moral of that part is "don't be stupid."
Bubbles rock because bubbles bring a ton of money into a sector. That money goes to fuel innovation, form infrastructure, and develop technology from a white piece of paper to the production scale. And then it does it again, and after the eight time this happens we're back at the stage, and it repeats again and then again and then someone says "Hey, the emperor's naked" and everyone swears and cries.
But in between the true arbitage and the craplog stage the innovation, infrastructure, and development are real. Look 5 years after any bubble and you'll see that there is some pretty cool companies making real profit and being run by grown ups. Global commercial networks that allowed flat earth interaction were a function of the Asia bubble, Web 2.0 was a function of the tech bubble, etc.
So in review, bubbles rock.


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