Book review: Investment bubbles to the rescue

Financial markets are starting to feel irrational again, and if the thesis of a new book on investment bubbles is correct, that could be very good news — possibly even the best news.

In the impeccably timed "BOOM: Bubbles and the End of Stagnation," Byrne Hobart and Tobias Huber make the case that bubbles are exactly what the world needs, exactly now.

Investment bubbles, they explain, align financial speculation and technological innovation in a way that makes speculative enthusiasm a force of societal progress.

This is an attention-getting thesis because we typically associate market bubbles with the kind of irrational exuberance and herd behavior that invariably results in widespread financial ruin.

Hobart and Huber reframe these tendencies as a feature of both financial markets and human psychology.

"Bubbles," they write, "are uniquely suited to incubate and accelerate future technologies that can break through stagnation and accelerate growth."

It might even be the only way to do so.

By coordinating a "relentless search" for "enormous scientific, technological and economic breakthroughs," investment bubbles are our "only hope to arrest and reverse society's entropic tendencies."

It's not just about the tech, either.

Hobart and Huber also see bubbles as having a "psychic benefit" that can help people break out of their personal stagnation by offering them both an "outlet for restless energy" and a "transcendent mission" to pursue.

When they write, for example, that there's a "quasi-religious dimension" to the Bitcoin bubble — a "cryptotheology," as they christen it — they mean it as a compliment.

They even describe bubbles as a kind of time machine that provides an opportunity for participants to "live in the future."

"BOOM" is not another neoliberal love letter to markets, however — far from it. The authors' diagnosis for why the world is currently stagnating is highly aligned with anti-market types.

They attribute, for example, the economic and societal stagnation of recent decades (as they describe it) to a rise of "financial nihilism" that resulted from the US going off the gold standard in 1971 — much like, say, Thomas Piketty might do.

So the authors' proposed anecdote of more markets ("bubbles are the solution to stagnation") might feel a little disorienting — the opening chapters of the book are a surprising mix of Occupy Wall Street and anarcho-captialism.

It all starts to make sense, however, when they redefine the concept of investment bubbles for us.

"The Manhattan Project, the Apollo program and the development of COVID-19 vaccines were all bubbles," they write, before also crediting an "R&D bubble" in US defense spending for the demise of the Soviet Union.

Of course, none of these events were driven by wild-eyed investors irrationally taking leave of their senses (unless you count the US government as a single, wild-eyed investor), so it's novel to see these success stories described as bubbles.

But that's what makes "BOOM" worth reading: Hobart and Huber redefine bubbles as "coordination mechanisms" that incentivize masses of people to work on the same thing at the same time and which encourage the over-investment required to turn previously unimaginable things into reality.

Among other commonalities, bubbles achieve this by encouraging a broad-based "extreme willingness to take risks, constantly reinforced by unrealistic levels of optimism."

This is perhaps why the authors do bitcoin the honor of being included alongside the historic achievements of the Moon landing, the controlled use of nuclear fission and COVID vaccines — bitcoin, they write, "is a bubble machine." (Again, meant as a compliment.)

Still, I'm not entirely sure it belongs in such rarefied company.

Unlike the other cited bubbles, which the authors say are driven by a "definite optimism," I'd argue that bitcoin is driven by a "definite pessimism" — specifically, pessimism about the world's economic future (the collapse of the US dollar wouldn't be fun for anyone, Bitcoiners included).

But "BOOM" left me thinking there's a higher probability than previously imagined that bitcoin could succeed in becoming a "new civilizational substrate" (whatever that may mean).

I continue to view bitcoin primarily as insurance against hyperinflation, but "BOOM" has me thinking it might be manifesting the event that it's insuring against — bubbles can "create the future they envision," as the authors describe it.

The conclusion of "BOOM" gets a little trippy: "The techno-scientific sublime, like a cathedral or a work of art, invokes a spiritual or religious experience of transcendence."

You'll also learn some new words like "thymotic" and "eschatology" and new phrases like "archeo-futuristic technology" and "hyperstitional reflexivity" along the way. (Be sure to drop these into conversation at your next dinner party.)

Once you've gotten that far, however, the authors' poetic, big-picture takeaway will make sense to you: "Bubbles create the reality-distortion field that the transcendent mission requires."

By that point, you'll probably also find yourself agreeing that the mission is critically important — because how else will we "overcome the existential risk of not making enough progress"?

At the very least, reading "BOOM" will persuade you that "we need to cultivate and catalyze boldness and exuberant risk-taking" — and that the world is better with investing bubbles than without: "A world without bubbles is a world defined by pre-existing limitations."

The true test of the authors' success, however, will be how much the quote at the top comes to make sense to you.

If the authors' statement that only bubbles can "prevent the apocalypse" seems like hyperbole to you, as it probably does, they want you to know that it's not: "We literally mean the apocalypse."

Having just finished "BOOM," I think they might be right.

— Byron Gilliam

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