Bubbles act as coordination mechanisms, signaling where resources and talent should be directed. They create a sense of urgency, encouraging people to take risks and innovate in areas that might otherwise be neglected. This can lead to the development of technologies or infrastructure that wouldn't exist without the speculative boom.
A good bubble is one where speculative enthusiasm leads to the development of transformative technologies or infrastructure that wouldn't have been built otherwise. These bubbles are characterized by applied science fiction, where bold visions of the future are funded and realized, often accelerating technological progress.
Good bubbles focus on creating new technologies or industries (e.g., railroads, AI, crypto), while bad bubbles involve financial engineering and scaling existing systems without significant innovation (e.g., housing bubbles, subprime mortgages). Bad bubbles often result from low-risk, high-return speculation rather than genuine technological advancement.
Stagnation is a problem because it reflects a lack of bold, transformative innovation. Modern society has become risk-averse, favoring incremental improvements over radical breakthroughs. This has led to slower productivity growth and a hollowing out of industries like manufacturing, which has been outsourced to other countries.
Risk aversion contributes to stagnation by discouraging individuals and institutions from pursuing high-risk, high-reward projects. Society has embraced safetyism, prioritizing stability over innovation. This cultural shift has made it harder to fund and develop transformative technologies, leading to a slowdown in progress.
Bubbles are seen as a potential solution to stagnation because they inject risk and speculative energy into the economy, encouraging innovation and the development of new technologies. Without bubbles, progress can stagnate as society becomes too cautious and incremental in its approach to growth.
Examples of productive bubbles include the railroad boom, which led to the development of a vast rail network, and the crypto bubble, which has driven advancements in decentralized finance and digital currencies. These bubbles resulted in significant technological and economic progress.
FOMO is a natural response to bubbles, especially when they signal a transformative opportunity. Byrne argues that if you have skills relevant to a bubble, fearing missing out is rational. It encourages people to participate and contribute to the development of new technologies or industries.
Potential future bubbles include space exploration (e.g., Elon Musk's Mars projects), biotechnology (e.g., life extension and health advancements), and energy innovations. These areas represent ambitious, transformative visions that could benefit from speculative investment and innovation.
Byrne argues that over-regulation and a preference for incrementalism have stifled innovation. Regulations often prioritize stability over risk-taking, which can slow down the development of new technologies. This regulatory environment contributes to societal stagnation by discouraging bold, transformative projects.
How can economic bubbles be good for the world?
Byrne Hobart is a financial analyst known for his newsletter "The Diff" which covers tech, trends and economics. Byrne has been on the periphery of crypto for longer that this podcast has existed
In this podcast we discuss the book he has co-authored, Boom: Bubbles and the End of Stagnation, where he makes the case for why human progress has stagnated and why speculative bubbles might be the only way out.
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------ TIMESTAMPS
0:00 Intro 7:29 Byrne’s Crypto Background 10:13 Bitcoin Inception 28:17 Blockspace Economics 34:20 BOOM Thesis 45:35 The Great Stagnation 1:16:46 Civilizational Risk 1:32:31 Good Bubbles vs Bad Bubbles 1:40:04 Identifying the Next Bubble 1:47:53 Closing & Disclaimers
------ RESOURCES
Byrne Hobart https://x.com/ByrneHobart)
Boom: Bubbles and the End of Stagnation https://a.co/d/f7m2OG8)
The Diff Newsletter https://www.thediff.co/)
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