> it's very hard to make macro economic calculations like this. There are so many more factors that haven't been mentioned and surely there are some of those unknown unknowns lurking somewhere as well :-)
Right, in which case we should evaluate it some other way. I think a good analogy can be illuminating.
Say we have an island population which consumes umbrellas (for shade) and coconuts (for food). If there's a bubble in umbrellas, that means the island society built too many of them, falsely thinking it would be worthwhile to do so. Since there's a glut of umbrellas, all the builder takes a loss, and probably lays off some or all of his newly-hired umbrella-building workforce.
But the umbrellas don't disappear, so it's not all bad, right? Over time, the umbrellas will wear out and those in storage can be used. That seems to be the gist of the article.
But this argument falls apart if you realize that the goal of any economic system, and particularly the free market system, is the efficient allocation of capital. The most efficient arrangement on our hypothetical island would have been to make only umbrellas as are needed, when they're needed, built by a consistent, maintainable workforce, and leaving others free to do as they will.
This is true of infrastructure as well; businesses and societies flourish when the find the most efficient ways of doing things, and businesses found out a long time ago that holding excess stock is wasteful (see http://en.wikipedia.org/wiki/Just_in_time_manufacturing). We should accept this and not try to paint a pretty face on waste.
They say that:
> Luxury riverside developments that now dot the banks of the Thames in London may be empty for the moment but will find occupiers eventually
but they fail to mention that by over-allocating goods and labor to large, luxury apartments they've reduced access to other things. For example, more modest, economically sustainable apartments could have been built in the place of these, which would have meant more efficient, denser land-use.
Anyway, IMO this is all hogwash. Of course it's not all for naught, but that doesn't means it's any good.
I see your point and I agree that inefficient resource allocation doesn't suddenly turn into a benefit just because not everything that has come out of a bubble is completely worthless. It's less efficient than it could have been.
But the question is whether some of the good things that are created inefficiently in a bubble would have been created at all without a bubble. Some things might never have happened without bubbles because only competely reckless behaviour could lead to the kind of massive momentum needed for some kinds of changes.
Would web applications be mainstream today without the .com bubble? Or would we have this debate inside Microsoft Outlook?
What about revolutions in general? Can every revolution be replaced by evolution?
Right, in which case we should evaluate it some other way. I think a good analogy can be illuminating.
Say we have an island population which consumes umbrellas (for shade) and coconuts (for food). If there's a bubble in umbrellas, that means the island society built too many of them, falsely thinking it would be worthwhile to do so. Since there's a glut of umbrellas, all the builder takes a loss, and probably lays off some or all of his newly-hired umbrella-building workforce.
But the umbrellas don't disappear, so it's not all bad, right? Over time, the umbrellas will wear out and those in storage can be used. That seems to be the gist of the article.
But this argument falls apart if you realize that the goal of any economic system, and particularly the free market system, is the efficient allocation of capital. The most efficient arrangement on our hypothetical island would have been to make only umbrellas as are needed, when they're needed, built by a consistent, maintainable workforce, and leaving others free to do as they will.
This is true of infrastructure as well; businesses and societies flourish when the find the most efficient ways of doing things, and businesses found out a long time ago that holding excess stock is wasteful (see http://en.wikipedia.org/wiki/Just_in_time_manufacturing). We should accept this and not try to paint a pretty face on waste.
They say that:
> Luxury riverside developments that now dot the banks of the Thames in London may be empty for the moment but will find occupiers eventually
but they fail to mention that by over-allocating goods and labor to large, luxury apartments they've reduced access to other things. For example, more modest, economically sustainable apartments could have been built in the place of these, which would have meant more efficient, denser land-use.
Anyway, IMO this is all hogwash. Of course it's not all for naught, but that doesn't means it's any good.