The beauty of bubbles

A very well argued piece on lasting benefits of bubblesin latest Economics. It uses examples of some historic bubbles and looks at their lasting contributions to certain industries.

Property bubbles have painful consequences. They also have useful ones

The story of Florida’s land boom is a classic example of a bubble and its dangers. The costs are clear: growing speculation as the bubble inflates, driving prices and value further and further apart; the sharks and the fraudsters, peddling fantasies to misguided investors; the gathering doubts about sustainability; and then the calamitous bursting of confidence, causing debts, defaults and despair.

But the Florida boom is also a reminder that the bubble metaphor does not do full justice to the consequences of a financial boom and bust. After all, a bubble is evanescent. Once it has popped it leaves nothing behind. In Miami and the rest of south Florida this was patently not the case.

Bankrupt he may have been but Fisher had streets to walk through. When he and Jane first visited Florida in 1910, the city of Miami was already growing fast but Miami Beach was home principally to mosquitoes. The painstaking efforts of Fisher and others to dredge the bay, clear the mangrove roots and landscape the new terrain had irrevocably changed Miami Beach before the 1920s even began. The boom years of that decade saw the scale of construction accelerate and widen. Dozens of flagship hotels were built. Resorts such as Boca Raton and Coral Gables were created in other parts of Florida. The boom had its share of schemes that never got anywhere but it also left behind a lasting physical legacy of buildings and streets and beaches and man-made islands.