Daniel Gross: Why bubbles are great for the economy
[Daniel Gross (www.danielgross.net) writes Slate's "Moneybox" column. You can e-mail him at moneybox@slate.com. He is the author of Pop! Why Bubbles Are Great for the Economy.]
In my new book, Pop! Why Bubbles Are Great for the Economy, I explain why Americans have misunderstood the frenzies, manias, and stampedes that periodically seize us. ...
... once you gain a little historical distance from bubbles, it is clear that some bubbles—some, not all—leave behind something that is a little bit boring but extremely useful: infrastructure. The bubbles that have left behind commercial infrastructure have been incredibly important contributors to America's remarkable long-term economic performance.
Simply put, bubbles are how new commercial infrastructure gets built in this country. In the 1840s and 1850s, European governments slowly strung up telegraphs from large city to large city. But in the United States, bubble-drunk entrepreneurs rampaged throughout the countryside, stringing up competing and often redundant wires way ahead of demand. Most went bankrupt. In the 1880s, vast competing, and often redundant, rail networks were built way ahead of demand. By 1894 about a quarter of the rails were in bankruptcy. The 1990s saw an orgy of commercial infrastructure built for the Internet. We all know how that ended.
But Americans recover from failure very quickly. All that infrastructure wasn't torn down—it was consolidated, taken over by new investors with lower cost bases, and reused. The cheap, pervasive telegraph led to American dominance in the national and international market in information—and long-lasting businesses like the Associated Press and the Chicago Board of Trade. The cheap, pervasive national railroad network led to an integrated market in goods and commodities—and long-lasting businesses such as department stores, mail-order retailers like Sears, and national brands from Coca-Cola to Procter & Gamble. The Internet pop has left us with Web 2.0—Facebook and Skype, MySpace and YouTube, and, most of all, Google. Each of these companies either was started or gained critical mass after the Internet bubble burst. Each gained tremendous scale overnight thanks to all the cheap excess capacity built during the 1990s bubble....
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In my new book, Pop! Why Bubbles Are Great for the Economy, I explain why Americans have misunderstood the frenzies, manias, and stampedes that periodically seize us. ...
... once you gain a little historical distance from bubbles, it is clear that some bubbles—some, not all—leave behind something that is a little bit boring but extremely useful: infrastructure. The bubbles that have left behind commercial infrastructure have been incredibly important contributors to America's remarkable long-term economic performance.
Simply put, bubbles are how new commercial infrastructure gets built in this country. In the 1840s and 1850s, European governments slowly strung up telegraphs from large city to large city. But in the United States, bubble-drunk entrepreneurs rampaged throughout the countryside, stringing up competing and often redundant wires way ahead of demand. Most went bankrupt. In the 1880s, vast competing, and often redundant, rail networks were built way ahead of demand. By 1894 about a quarter of the rails were in bankruptcy. The 1990s saw an orgy of commercial infrastructure built for the Internet. We all know how that ended.
But Americans recover from failure very quickly. All that infrastructure wasn't torn down—it was consolidated, taken over by new investors with lower cost bases, and reused. The cheap, pervasive telegraph led to American dominance in the national and international market in information—and long-lasting businesses like the Associated Press and the Chicago Board of Trade. The cheap, pervasive national railroad network led to an integrated market in goods and commodities—and long-lasting businesses such as department stores, mail-order retailers like Sears, and national brands from Coca-Cola to Procter & Gamble. The Internet pop has left us with Web 2.0—Facebook and Skype, MySpace and YouTube, and, most of all, Google. Each of these companies either was started or gained critical mass after the Internet bubble burst. Each gained tremendous scale overnight thanks to all the cheap excess capacity built during the 1990s bubble....