How do bubbles work?

June 2015

Investment in tech startups is rising very rapidly; a few reports have it roughly doubling since 2013. It also seems like valuations are getting pretty high (although complain about this all the time, so it’s not clear whether this is actually a new problem). Tech employee salaries are very high, despite the fact that you can become a tech employee in about three months by going through a programming bootcamp. And MBAs are going into technology in large numbers again.

Various people think that these are indicators of a bubble–possibly caused by persistently low interest rates–or at least a boom that’s due for a correction. That would be worrying if true, since many people I know are in the process of re-training to become tech workers. Some of these folks are earning to give, and it would be a shame if the EA movement suddenly lost half of its funding because the tech industry went through a correction and salaries fell/unemployment rose.

This makes me wonder a couple things:

Unfortunately, the standard of argument for “is there a bubble” seems to be to point at your favorite recent high-valued tech startup anecdata, with no attempt at generality or historical context. So I haven’t been able to answer either of these very well!


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Jeff Wu

a friend sent me this earlier - https://a16z.com/2015/06/15/u-s-tech-funding-whats-going-on/ (n.b. it’s a big tech vc firm’s site, so likely to be somewhat biased)

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