Who says bubbles are bad?
Pop by Daniel Gross
TEXT OF INTERVIEW
SCOTT JAGOW: Bubbles seem to be an inevitable part of the economy, especially in America.We have such zest for new ideas and for money, sometimes we get carried away. But are bubbles like the dot-com boom or the housing market good for the economy? In a new book, author Daniel Gross says they are.
DANIEL GROSS: When bubbles leave behind a usable commercial infrastructure like the Internet, all those systems, all that fiber optic cable that was built, it didn't get torn out of the ground. It sat there and it got very cheap. And in the '90s a ton of money was spent convincing people to do stuff online and I call that the mental infrastructure. That sticks around after bubbles too. The end result is come 2002, 2003, if you had an idea for an Internet business, you could plug into this really cheap technology that worked. So you could build a business of global scale overnight for very little and Google is the best example of that.
JAGOW: But bubbles obviously can have a devastating effect on people's lives. You look at the real estate market and the foreclosure problems we're having now . . . what is the argument for bubbles being a positive part of the economy versus something that we should try to prevent?
GROSS: I in no way mean to minimize the frequently devastating impact but again I think that's only half the story. With real estate it's unclear what we will have gained from this bubble. Clearly some of these services like Zillow and Domania which were built, which are very popular, those will stick around and be useful to people. Clearly the mentality surrounding refinancing which encouraged people to watch the direction of interest rates and refinance when things were in their favor, that will stick around and has some very good economic benefits. But right when the bubble bursts it's hardest to see the upside.
JAGOW: Are there any bubbles forming right now?
GROSS: I think we see the classic stages happening with alternative energy. You've got government incentives of all types that are encouraging investment at pretty high levels. It has crossed over into the popular culture. It's impossible to pick up a newspaper or magazine without reading about alternative energy today. You've got Wal-Mart selling compact fluorescent bulbs, the popularity of An Inconvenient Truth. So I think if a bubble is a 9-inning game, with alternative energy, we're in the third or fourth inning.
JAGOW: Daniel Gross, author of Pop! Why Bubbles Are Great For The Economy, thank you.
GROSS: Thank you.
JAGOW: In Los Angeles, I'm Scott Jagow. Have a great weekend.