Boom: Bubbles and the End of Stagnation

by Byrne Hobart

But the arc of progress is also a long series of unsustainable practices that eventually lead to more sustainable ones. Urbanization was a rolling health crisis until the advent of modern sanitation and medicine; artificial nitrogen fixation reached production scale just as the world was running out of its next-best fertilizer, millennia-old accumulations of guano on various small islands; coal averted deforestation in early industrial England. Every technology advancement couples finite natural resources with infinite human creativity, and pivots to a new finite input when the older one runs down.

For natural gas in particular, the impact of methane leaks on climate can be immense—methane has about 20 times the warming impact per molecule as CO₂ (albeit over a shorter period of roughly 12 years instead of a century), and can leak from both improperly drilled wells and decommissioned ones.

Memes, which compress information and evoke emotions, can encode valuable information for investors and speculators. The self-organizing dynamics of memes and narratives can therefore lead to spectacular busts and crashes.

Examples include Baku in Azerbaijan, where Zoroastrians worshiped “eternal pillars of fire”; Masjed Soleyman in Iran, the site of the Javidan fire temple; and Baba Gurgur in what is now Iraq, a town whose name translates to “father of fires” and whose eternal flames are possibly alluded to in both the Old Testament and Plutarch’s Lives.

The 2019 book VC: An American History by Tom Nicholas includes a chart showing the distribution of returns from whaling voyages and venture funds; they’re almost identical.

Both groups recognized that while there was a temptation to maximize prices, there was also long-term risk in doing so, because every sudden increase in oil prices would mean increased demand for more fuel-efficient vehicles, ultimately destroying some long-term demand.

Here’s how then-CEO of Halliburton Dick Cheney explained the workings of the oil business: “The good Lord didn’t see fit to put oil and gas only where there are democratically elected regimes friendly to the United States. Occasionally we have to operate in places where, all considered, one would not normally choose to go. But we go where the business is.”

“The Petrodollar Illusion,” a research paper from the hedge fund Clarium Capital, argued that these investments included products backed by subprime mortgages. Housing prices were partly driven by mortgage availability, and mortgage defaults were mitigated by rising home prices. Someone who couldn’t pay their mortgage with their current salary could tap the appreciated value of their home for a home equity loan and pay it that way. This created a cycle in which some of the money that came out of people’s pockets through rising gas prices went right back into those same pockets through rising housing prices. Of course, it’s unsustainable to maintain a high standard of living in the face of rising inflation merely by borrowing against appreciating assets, but it worked for a while.

This was particularly true for China. The US government generally endorses the idea that since there’s a global market for resources, no country needs to ensure that it has its own domestic supply. This perspective makes sense for America because, in light of its prodigious military capability, it can protect its access to resources abroad. But this is not true for other countries, particularly those that worry about ending up in conflict with the United States. China’s large investments in battery technology and electric vehicles in recent years, while certainly good for the environment in the long term, are also meant to lessen its dependency on imported oil.

As a result of Musk’s mastery of investment narratives, which he developed during the cleantech bubble, Tesla itself became a meme stock—that is, a stock that is primarily driven not by economic fundamentals but by narratives. It could be argued that Tesla is part of a larger trend toward the memeification of markets.

It’s the rare asset that has been called too expensive at $1 and too cheap at $65,000 without significant changes in its fundamentals.

A subsequent wave of digital payments startups—CyberGold, CyberCash, PayPal, E-Gold—tried to do what DigiCash couldn’t. All of them failed. (PayPal, of course, succeeded in other ventures. After it abandoned the idea of enabling cryptographic digital currency payments, it took up the more lucrative business of enabling online credit and debit card purchases.)

As Peter Thiel once remarked, “The best startups might be considered slightly less extreme kinds of cults. The biggest difference is that cults tend to be fanatically wrong about something important. People at a successful startup are fanatically right about something those outside it have missed.”