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The first kind of bubble is where everyone believes the future will be like the present. Think credit bubbles and real estate; think 2007-2008, where the fundamental belief that drove the bubble forward and into ruin was “We’ve figured this out. We can’t lose. The risk has all been worked out. Lever up, cowboy. We will never die.”
There are two reflexive feedback loops at work here. The first is the positive feedback cycle between that belief, “We have the future figured out”, and rising asset prices - which confirm the invincible mentality and drive it forward. The second loop is that rising asset prices translate to lower cost of capital. In a mindset like this, we get excessively comfortable with investing that low-cost capital into businesses and investments that generate predictable future earnings, or the illusion of predictable. That cheap capital can then meaningfully contribute to those earnings actually materializing, on schedule. Bubbles can genuinely be self-fulfilling prophecies; to a point. Past that point it’s bad.
Never Hertz to Ask
Alex Danco
The one-armed woman said, “There was a movie called Maple recently. I don’t know if you’ve seen it. At the end, an adult and a child stand in front of the grave of a Red Guard who had died during the faction civil wars. The child asks the adult, ‘Are they heroes?’ The adult says no. The child asks, ‘Are they enemies?’ The adult again says no. The child asks, ‘Then who are they?’ The adult says, ‘History.’” “Did you hear that?” The thickset woman waved an arm excitedly at Ye. “History! History! It’s a new age now. Who will remember us? Who will think of us, including you? Everyone will forget all this completely!” The three old Red Guards departed, leaving only Ye on the exercise grounds. More than a dozen years ago, on that rainy afternoon, she had stood alone here as well, gazing at her dead father. The old Red Guard’s final remark echoed endlessly in her mind.…
The Three-Body Problem
Cixin Liu and Ken Liu
b. The imagined order shapes our desires. Most people do not wish to accept that the order governing their lives is imaginary, but in fact every person is born into a pre-existing imagined order, and his or her desires are shaped from birth by its dominant myths. Our personal desires thereby become the imagined order’s most important defences.
Sapiens
Yuval Noah Harari
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