Are We Under-Bubbled?

For Byrne Hobart and Tobias Huber, partners at the tech investment firm Anomaly, a financial bubble is the closest that human beings can get to spooky action at a distance. Their provocatively titled new book Boom: Bubbles and the End of Stagnation aims to make the case that the visionary cascades, which almost always end in collapse, are on balance actually good. A few massive successes, in their argument, more than pay for the short-term rise and falls. Bubble dynamics are marked, the authors write, by “definite optimism.” Bubbles, at their best, are a mechanism for trust and collaborative action. Major technological breakthroughs of the past century would have been impossible without them.

The several definitions of bubbles provided in the book don’t leave a reader totally clear on what counts as one. While in general use a “bubble” often has a fraud at its heart, for the authors it doesn’t have to. It can even involve an endeavor as tightly coordinated and official as the Manhattan Project. They offer little discussion of conventional bubbles like the Dutch tulip mania or the blood-testing fraud Theranos.

Instead, what the reader gets is an inside view of belonging to a growing bubble, and of what good the authors think society and the individual can derive from these moments of intense collaboration. Participating in a bubble can feel like being in on a secret, belonging to a sworn confederacy whose actions reinforce each other. Hobart and Huber see “a belief system oriented toward self-reference and self-fulfillment” as core to a bubble’s dynamic. Epistemic closure is a feature, not a bug, as long as you’re closing ranks around some not-yet-widely-appreciated truth. The insular nature of the bubble gives members the chance to abandon persuasion and focus on living out the consequences of their possible insight — for better or for worse.

If the reading experience of Boom seems a little deliberately alienating — in stark contrast to Stripe Press’s beautiful, pick-me-up construction of the physical book — perhaps that’s the authors imposing a “you must be this crazy to enter” filter of their own. Before readers get to consider the authors’ case for bubbles, they’ll need to get through lengthy recriminations over the end of the Bretton Woods monetary system and the rise of fiat currency. Hobart and Huber care deeply about inflation as a risk inhibitor — they feel that a world where money loses value moment to moment leads to a general devaluation of and disinvestment in the future.

A nation of calm, prudent index fund investors (guilty!) is limiting what the authors see as the proper flow of money and talent toward the projects that reshape the world. Hobart and Huber aren’t interested in breakthroughs by a lone genius. They are interested in the achievements that require many different people, operating with limited communication and little coordinating authority, pouring time and treasure into a project that requires them all to keep faith. A bubble, as they see it, is a way of meeting in the cooperate–cooperate cell of a prisoner’s-dilemma matrix.

Hobart and Huber identify Moore’s Law as an example of a straightforwardly positive bubble that required this sort of solidarity to stay true. Gordon Moore, the co-founder of Fairchild Semiconductor and Intel, noted in 1965 that the number of transistors on an integrated circuit doubled about every year and a half, and that he expected this trend to continue. His industry took his claim and reified it to a law. Software makers planned projects that presumed that chips would continue to increase in potency and decrease in price. Chip manufacturers pushed past the present state of the art, trusting that their customers would innovate in a way that required better than the current best.

If it hadn’t been for Moore’s pronouncement, progress might have been more halting. It takes a certain appetite for risk to build something your customers do not yet know to desire.

I can certainly think of places where the lack of this kind of bubble dynamic was costly. America badly needed it throughout the Covid pandemic. In the best form of a bubble, manufacturers of rapid tests, air filters, and vaccines would spin up quickly at the first hint of a potential pandemic, expecting to be met with purchase orders and bounties for rapid innovation. Instead, American mask manufacturers haltingly expanded factories and wound up kicked to the curb the moment shortages abated. Designers of rapid tests were obstructed at every turn and could not make the leaps forward for home diagnosis that were allowed in Europe, where Covid, flu, and RSV could all be screened at home in a single, convenient kit.

In America, there was no flywheel effect, no new operators rushing into a growing market, no parallel innovation. As a result, we have arguably lost ground on pandemic preparedness after a practice bout with Covid. Instead of enjoying the unifying dynamics of the Moore’s Law bubble, America wound up more divided.

Bubbles can be polarizing and still succeed, as long as they unite the critical stakeholders within an industry. Because bubbles represent a strong claim about the future, they create different market dynamics than when buyers and sellers agree on the general shape of the next quarter but are sweating over minor details. As the authors note, a company that will either go exponential or go to zero has its prices set by “trades between the most optimistic investor and the most committed short seller.” For obvious reasons, these bubbles are more attractive to the optimists than the shorts, since even when a collapse seems inevitable, it can be hard for the shorts to stay solvent long enough to enjoy it.

A bubble is the start of an argument. At their most ambitious, Hobart and Huber see bubbles as a kind of attempt at time travel. A bubble’s adherents can see the shape of things to come, and create a rip in the rhythms of time to pull the future toward today faster. Elon Musk summarizes this mindset when he says that “at SpaceX we specialize in converting things from impossible to late.”

A long-term bubble has different dynamics than a pump-and-dump frenzy. It requires sustaining a culture — and leaving a legacy — that engenders trust and willingness to sacrifice. The social dynamics of a bubble can parallel that of religious movements — where charismatic founders are common, and, in the opinion of Hobart and Huber, are more powerful when they die or disappear in their prime. They believe Satoshi Nakamoto’s disappearance in 2012 strengthened Bitcoin and cryptocurrency. “An early departure cements [a founder’s] initial statements as canonical,” they argue, “causing subsequent work to focus on instantiating their ideals in the real world or accurately interpreting their views.”

One of the most basic claims of a bubble is that the future is thrilling, and it’s within reach. Some bubble cultists may expect to see the still-more-glorious dawn themselves, but bubbles can sustain themselves over longer timelines when the participants are parents. As the authors point out, Michael Griffin, a former NASA administrator, has said that the space program is a modern cathedral. Going multi-planetary is too great a task for a single generation; it requires trust that your children and your children’s children will continue to lift blocks with pulley and tackle, or to lift payloads with liquid oxygen.

There has to be a sustaining hope in things not seen to keep this kind of bubble or project running. The authors see this as a mindset of “excess, exuberance, and irrationality” as opposed to one of “cost–benefit analyses, rational calculation, and careful and deliberate planning.”

What could represent the best of both worlds? In venture capital, canny investors aren’t swept away by pitch decks and persuaded that each company they buy into is really going to a billion-dollar valuation. A VC firm assembles a portfolio of lottery picks, expecting nearly all to be a bust, but trying to be smart enough about the odds that the one company that pays off covers their costs and much, much more. Publishing companies take the same approach to contracting with authors — though it’s much more hurtful to admit to a novelist’s face that you expect your modal author will flop.

Venture capital investors, commissioning editors, law school professors steering students to feeder clerkships are all in some sense breeders of bubbles. They facilitate the conditions conducive to maximum effort, but, by holding a diversified portfolio of projects and protégés, are more protected from the burst.

So why plunge into the bubble yourself instead of buying partial shares of many and being indifferent to which ones pay out?

The authors’ answer becomes clearer in the final chapters. The writing becomes more romantic and manic as the references to René Girard and Martin Heidegger begin to multiply. Although the book began with worries that fiat currency and currency devaluation would lead investors to be too pedestrian with the risks they take with their portfolios, ultimately Hobart and Huber want to persuade the reader to risk his or her life.

As the authors argue, each of us is already making a bet on the future in our choice of studies, career, friendships, and so on. They argue that we should have a greater appetite for risk when we stake our time and our sense of identity than when we simply plunk down money. They expect we will have more chances to get in on the ground floor of a fruitful bubble as a worker than as an investor — and that we would have better sources of truth from inside a company than from outside through a brokerage.

But, more than that, they argue that your investment of your self never goes to zero the way a series of stock puts might. “Investments can vaporize in an instant,” they write, “but the memory of being part of a tiny band of people trying to change the world, and feeling for a time like it’s succeeding, is timeless.”

The future might or might not come to kiss the present. The equity you hold might go to the Moon or to zero. But the real pitch for belonging to a bubble is, at least in part, the same one made by Rudyard Kipling in “If.” Holding your past gains more loosely than your future purpose grants you “the Earth and everything that’s in it / And — which is more — you’ll be a Man, my son!”

Boom could easily lead the reader to join the next Theranos. The startup promised to run comprehensive blood tests with only a tiny drop of blood, but when the technology never came together, the founders turned to fraud and threats to keep employees in line. A reader of Boom who was only interested in finding a risk to lean into might do his part in maintaining the front, hoping that another few months of runway coaxed out of investors with fake results would give the company the time to make the breakthroughs it needed.

But a reader who connects with Hobart and Huber’s praise of bubbles as a chance to form character instead, to become worthy of shared trust in the trenches, might instead become the next Tyler Shultz. Shultz, a Theranos employee, blew the whistle again and again on its massive medical fraud. He kept speaking up even when telling the truth endangered his finances and his relationship with his family — his grandfather, former Secretary of State George Shultz, was a board member and a key builder of confidence in the company.

In a way, Shultz moved from one bubble to another. Instead of persisting in hope that somehow the blood-testing product would become a reality, he kept telling the truth, no matter how fruitless it seemed, trusting that an ally would emerge, working in parallel, connected to him only through a shared sense of the future. The best bubble-seeker believes the world might be full of unknown allies, and strives to become the confederate they are counting on, long before they meet.