Daniel Gross is a very good and quite prolific writer on the economy, from his “Moneybox” columns in Slate to his “Economic View” columns in the New York Times; soon, he will be taking his skills to Newsweek. His new book, Pop! Why Bubbles are Great for the Economy, tells the story of various American investment bubbles, from frenzied railroad overbuilding in the 1880s to the dot-com delirium of the 1990s. His conclusion: notwithstanding the damage to individual companies, and perhaps millions of stockholders, bubbles play a determinedly healthy role in the continuing success of U.S. industry. The following excerpt sums up his argument quite well:

[I]f you take the long view … it’s possible to detect a pattern that emerges in bubbles and their aftermaths. Especially bubbles that leave behind a new commercial and consumer infrastructure. With apologies to Oliver Stone, these bubbles, for lack of a better word, are good. These bubbles are right; these bubbles work. Thanks to the American penchant for creative destruction and the U.S. bankruptcy system, investors — and the economy at large — tend to get over bubbles quickly. … The stuff built during infrastructure bubbles — housing and telegraph wire, fiber-optic cable and railroads — doesn’t get plowed under when its owners go bankrupt. It gets reused — and quickly — by entrepreneurs with new business plans, lower cost bases, and better capital structures. And when new services and businesses are rolled out over the new infrastructure, entrepreneurs can tap into the legions of users who were coaxed into the market during the bubble. This dynamic is precisely what has made Google the “it” company of this decade …

Looking back, many similarly iconic companies and industries that have stimulated economic growth, and that helped define America’s commercial culture, were either formed in those hothouse bubble environments or can trace their origins to their aftermaths. Consumer packaged goods and mass retailing, data services and mass media, the vast financial services sector, tourism, telecom, and what venture capitalists still call “the Internet space.” Sears, the Associated Press, Western Union, Fidelity Investments, Google — they may all have developed anyway. But they certainly would not have developed as they did without the Pop! dynamic.