Minor Thoughts from me to you

Bubbles are good for you. Not the bubbles kids play with or the bubbles in your bubble bath, but the bigger, flashier kind. You know -- the tech bubble, the housing bubble, etc. At least, that's what Daniel Gross says.

Well, the conventional wisdom holds that bubbles are bad. Economists don't like them because they represent irrational behavior. A lot of people get hurt. They invest at the top, they lose their money. It's a misallocation of resources. My argument is that the pop of the bubble is only half the story.

Well, the way that new infrastructures get built in this country is frequently through investor enthusiasm. The government may help roll out new technologies, but we don't have the government putting up telegraph lines or stringing fiber optic cable that connects people's homes to the internet.

These activities don't proceed in a rational, easy-going way. They move in fits and starts. It's the bubbles that lead to this very rapid roll out of a new commercial infrastructure, one that businesses can plug into and use, like the telegraph or the railroad or the internet.

So bubbles create platforms for growth and innovation that help propel the economy forward.

I like his argument. It's the same one, basically, that Tom Friedman makes in The World is Flat. During the .com boom, telecommunications companies were convinced that the boom would go on forever and that they all needed their own fiber optic cables. So, they spent wildly and laid thousands of miles of fiber.

They were wrong. They didn't all need their own fiber. One by one, they went bankrupt. But the fiber remained. Now, it's been bought up on the cheap by new companies and they're using it to deliver YouTube, Google Apps for Your Domain, Facebook, online video of the NCAA basketball tournament, etc.

Right now, we're reaping the benefits of the irrational exuberance of the .com bubble. Gross thinks that we'll be reaping the benefits of the housing bubble within a few years, and that we're just in the beginning phases of an alternative energy bubble.

I hope he's right -- both for my long-term housing values and because I want to see what we can invent next.