The cost of regulation is a decrease in both convenience and innovation. By eliminating regulation, you get a whole host of new startups that were previously held back, some of which solve genuine problems that have no existing solution. Consumers flock to these startups because right now, in this moment, they solve problems better and are more responsive to customers than the existing regulated incumbents.
Many regulations solve problems that only appear at scale, so as long as the new startups are small and voluntary, regulators take a hands-off approach and let these startups enjoy their competitive advantage. It takes time for regulators to catch up, so for several years, these new solutions can grow and get new adopters. Eventually all the bad behavior that caused the regulations in the first place appears, and there're calls for regulation, and the new boss starts to look an awful lot like the old boss. But people don't make their purchasing decisions based on what's going to happen in 20 years, they make their purchasing decisions based on what they need now.
You see this with a lot of dot-com era startups. People knew in 1997 that Amazon was going for monopoly and was just going to jack up prices when they achieved it; hell, Jeff Bezos even told investors as such. But consumers didn't care: we wanted convenience and low prices now, and even if we did without, other people would give Amazon their business, and all we'd succeed at is disadvantaging ourselves. Similar with Facebook; most people knew they were trading away their privacy (Zuckerburg's "dumb fucks" IM was made public in 2010, and he said it in 2004), but goddamnit, people wanted to see what their grandkids were up to.
Thank you for pointing out one of the big upsides to entrepreneurial bubbles. (Not necessarily all "speculative" bubbles.)
The simplified form is that a "gold-rush" mentality in an entrepreneurial bubble, even though it misprices risk generally, incentivizes builders to go build things more than they would, and since on balance building things is good, a hyper period of new venture formation still leads to net gains even if most are failures.
But nostrademons has a next-level mechanic here -- the idea that stage and scale are not fractal, and hence that rebuilding an ecosystem de novo (perhaps in a sort of sheltered petri dish) can yield big interesting beneficial outcomes because of the plasticity of things at the smaller scale and earlier stage.
(Still, I think it's a monumentally bad idea to acquiesce in the rebuilding of the financial system de novo by amateurs.)
I like your idea of time-arbitrage. I think Uber and AirBnB are good examples of startups that have created value by operating in loosely regulated areas. Still, I haven't anything emerge from the crypto space that appears to have a true value proposition and is not intimately connected to the exchange rate of virtual tokens
People knew in 1997 that Amazon was going for monopoly and was just going to jack up prices when they achieved it
Is that really the story of the past 21 years though? Instead it seems like Amazon has still not achieved monopoly in retail, and they still aren't getting amazing margins from it.
