The Industrial-Age Bubble
In financial terms, a bubble is a phenomenon in which the prices of assets — be they shares of stock, real estate holdings, or other forms of capital — outpace the assets’ fundamental value. When financial bubbles pop, the same question is always asked: How is it that overexpansion and collapse occurred yet again, drawing in otherwise bright and knowledgeable people?
The answer is that during a period of overexpansion, two parallel views develop, one from inside the bubble and one from outside. Each perspective feels real to those who hold it. The more the bubble grows, the more people are drawn into the powerful reinforcing beliefs and perceptions it inspires. Eventually, those inside the bubble become so absorbed by its new reality that they can no longer understand the point of view of those outside the bubble.
Recall the exchanges between those inside and those outside the dot-com bubble of the late 1990s. Those inside the bubble were living in a “new economy” with new rules, with momentum that seemed to speak for itself. Believers judged success by their technology, hits on their Web site, their site’s “stickiness” (how long people stayed on it and how frequently they returned to it), buzz, and frequently a cool, anticorporate image. So many people thought this way, at the bubble’s height, that profitable “old economy” businesses saw their market value decline in comparison to their dot-com counterparts, despite the fact that many of the most celebrated dot-coms had little or no profits.
But there was a different reality outside the bubble: Profits did matter. Eventually it became clear to investors within the bubble that the price of dot-com assets was not supported by the companies’ value-making potential, and the bubble burst.
Bubbles are not entirely pernicious; indeed, they usually provide some real benefit — at least to some people or for some time. Some dot-com stocks were great assets. Some subprime mortgages did improve lives. The longer the bubble endures, the more people and resources get drawn into it, the more people benefit from it, and the more the beliefs supporting it become entrenched. If a bubble can last for generations, it becomes hard to imagine an alternative to it. But at some point the tensions and inconsistencies between life inside the bubble and the larger reality outside it must be resolved. The bubble cannot expand indefinitely.
The industrial age constitutes an extended bubble of just this sort. Its expansion has continued for more than two centuries, so it is easy to assume that it will continue forever. Its positive impact has been undeniable: Life expectancy in the industrialized world has roughly doubled since the mid-1800s, literacy has jumped from 20 percent to more than 90 percent, and benefits hitherto unimaginable have sprung up in the form of products (canned foods, machine tools, iPods), services (air travel, eBay), and astounding advances in health, communication, education, and entertainment.
But the more harmful side effects of the industrial age have also been apparent from the beginning, at least to those who looked for them. They include a host of environmental crises, including increased waste and toxicity, growing stresses on finite natural resources, a loss of community, and a commodification of daily life that led to a widening gap between the rich and the poor. Biologist Edward O. Wilson calls the view from outside the industrial age bubble “the real real world.” From this perspective, no matter how valuable the assets of industrialization may be, their overall costs make the bubble unsustainable. One might argue about exactly when or how the bubble might end, but there are already signs that the kinds of investments of money, effort, and attention that brought success during the bubble are less likely to yield the same benefits now. Investments outside the bubble are another story. They will produce both more wealth and a more sustainable life, as people leave their old assumptions and practices behind.