SpaceX and the Bubble Factory
The four financial bubbles of the twenty-first century are not separate phenomena. They are aftershocks of the same earthquake — one that is about to produce its final, great tremor.
Unless you’ve been living under a rock, you can’t have missed the fact that on Friday, a company whose stated purpose is to “make humanity a multiplanetary species” made its stock market debut. SpaceX — Elon Musk’s rocket company, which in twenty-odd years of existence has never turned a profit — claimed to be worth $1.7 trillion, and a lot of people apparently thought that sounded about right. By the close of trading, its share price had gained 19%, pushing its valuation past 2 trillion dollars.
If you’re someone who thinks that valuation is justified, I’m afraid this piece isn’t for you. But if you share my sense that this is absurd, and that the reality we live in is becoming an increasingly dysfunctional and incomprehensible charade, stay with me. This newsletter exists to shed some light on all of this. It sets out to clarify, once and for all, why nothing happening in the markets makes sense, how we know this is a bubble, and why — and even when — it’s going to burst.
It starts with the story of homo bulla.
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:: (Hijos del optimismo) Children of Optimism ::
Bubbles are, by no means, confined to the economy. Quite the opposite: they’re everywhere. Take this example: the women in the audience will know exactly what it’s like to have a crush. There’s this person who one day catches your eye a little, and before long you’re obsessed, and before you know it, you’ve spent six months imagining an entire relationship: twenty-five different versions of your first kiss, every place he was going to take you, how you were going to grow old together. And he doesn’t even know your last name yet. If, by some miracle, you do end up with that person, and they turn out to be an actual human being instead of the one you’d invented, the romantic bubble you’d built for yourself bursts.
The “midlife crisis” — at forty, or fifty, soon it’ll be sixty — is also the bursting of a bubble: the bubble of the promises we made ourselves and never quite kept. Bubbles are such a recurring feature of human experience that we even have a fable for them: the story of the milkmaid and Her Pail.
Instead of sapiens, they should have named us homo bulla. Because while biology, zoology, and ethology constantly remind us that there’s almost nothing in human beings that isn’t present somewhere else in the animal kingdom, this business of building bubbles really does seem to be ours alone: we are the only species capable of imagining different futures — and building them. We can not only anticipate what will happen tomorrow, but we are aware that whatever we want to happen could happen.
Bubbles are a curious phenomenon that occurs when our imagination accelerates to the point where reality can no longer keep up with it. Sooner or later, there’s no way around it: we have to admit we’d been dreaming of something impossible. And then they burst.
Contemporary Westerners have made that capacity to dream of the future the engine of our civilization: where other cultures placed God, we placed progress. And then we filled it with a whole set of institutions — debt, savings, investment, the “career” — that let us create a kind of mental continuity, as if the present and the future existed on the same plane of reality. Of all of these, the stock market is the most ambitious: the place where an entire civilization gathers to imagine its future and put a price on it, today.
It wasn’t always this way. Originally, stock markets were a solution for financing projects that exceeded the economic capacity of any individual. But over time they lost part of that function and gained another: they became the place where more and more people go to bet on the companies they believe will do well in the future — or, put another way, to bet on a vision of the future itself. Stock markets are markets for expectations.
The way it happens to women with a crush, markets get a certain license to dream — for a while. They can believe a company will do better than it actually will, and hold onto that belief with their backs turned to reality. But no dream lasts forever. Sooner or later, the account has to be settled between what we’d imagined and what actually happens. Ray Dalio, founder of the world’s largest hedge fund, put it this way the other day:
It’s important to distinguish between wealth and money. Wealth can be created very easily, like this: you say, “[to fund a company] I’m going to raise $50 million at a $1 billion valuation.” And now you have a billion-dollar company. But wealth can’t be spent. You need to sell that wealth to get money, because money is the only thing you can actually spend. So when there’s a lot of wealth relative to the amount of money that exists, there’s a vulnerability — and bubbles burst when that wealth needs to be converted into money.
Often that happens because of debt, but it can be triggered by anything. It could be a tax. Imagine a wealth tax is introduced: people holding assets are going to have to sell part of them to pay it.
That’s how financial bubbles burst. It’s one of the most well-documented patterns in economic history: the accumulation of paper wealth that eventually collides with the reality of money. It happened with tulips in seventeenth-century Holland, when a single flower could be worth the equivalent of a house in Amsterdam before the market collapsed; it happened with South Sea Company shares in 1720; with British railways in 1840; and in the 1929 crash.
In the twenty-first century, it has happened four times. And what we’re going to see today is that those four explosions were not, in fact, four separate bubbles. They were aftershocks of the same earthquake — one that has been shaking society for twenty-five years and is about to unleash its final — great — tremor.
This lightning never ceases nor exhausts itself:
from myself it took its origin,
and within myself it exercises its fury.
Miguel Hernández, El rayo que no cesa.
[translated from the original Spanish below]
Este rayo ni cesa ni se agota:
de mí mismo tomó su procedencia
y ejercita en mí mismo sus furores.
Miguel Hernández, El rayo que no cesa.
The Four Explosions
2000: The Dot-Com Bubble
After a few glorious decades, by the 1990s there wasn’t much left to do in the West. Millions of homes had been built, hundreds of thousands of kilometers of roads paved. New railway lines, hospitals, schools, and universities had gone up. Garages were full of cars, homes full of appliances. Industrial capitalism had run out of territory to conquer and was showing clear signs of exhaustion.
In search of a new frontier, the idea of the “information society” was born — a world in which knowledge would flow along information highways, e-commerce would multiply exchanges, and biotechnology would transform life. These were the years when world leaders like Al Gore and Tony Blair traveled the international circuit announcing the birth of a digital Globe in which we would all live interconnected lives, and the arrival of the first e-generation. The Euro was sailing smoothly, the Wall had just come down, and expectations of progress were immense. It was the end of history.
With no clearer picture of what that virtual world might actually look like, the one thing that did seem absolutely certain was that the internet was going to make money. A lot of money. That expectation inflated an enormous bubble in which hardware manufacturers’ shares soared. At the same time, a fever ignited around companies positioning themselves to dominate the coming e-commerce frontier. Any company could send its stock soaring just by sticking “.com” onto its name.
Until the day reality caught up with expectations. So much fiber-optic cable had been laid that, four years after the crash, 85% of it was still “dark” — with no traffic to carry. Those were, without question, real highways. But there was no traffic on them!
The bubble burst in March 2000. The Nasdaq — where almost all the tech companies were listed — began to fall after having multiplied fivefold in five years. The index lost roughly three quarters of its value over the following two and a half years. It wouldn’t recover that peak for another fifteen years. Trillions of dollars in wealth, which had only ever existed as expectation, simply ceased to exist.
Meanwhile, the real economy had barely moved. What collapsed was the story society had been telling itself about the future.
2008: The Mortgage Bubble
When the dot-com bubble burst, the Federal Reserve’s instinct was to try to prevent the contagion from spreading to the real economy. To avoid a credit crunch, it did something we would see repeated many times afterward: it cut interest rates and flooded the world with cheap money.
What the FED could not provide was a destination for all that money which, without the technological dream of Silicon Valley, had nowhere to be invested. That is how it ended up in the property market.
Investors weren’t the only ones the dot-com crash left orphaned. Without the prophecy of the knowledge society, politics had also been left with nothing to sell. So some leaders — Bush, or Aznar in Spain — saw in housing an opportunity to have a project to offer their countries again. In 2003, George W. Bush signed the American Dream Downpayment Act and pledged to use his administration to help more families become homeowners. It was, he said, “a good time to be a homeowner in America,” because low interest rates had made housing more affordable, and new home construction had just reached its highest level in nearly twenty years. If technology wasn’t going to bring a new world, the construction companies would build one out of bricks.
And for a while, it worked. The homeownership rate hit a record close to 70%. But to keep the party going, the financial system kept loosening up, and soon there were zero-down mortgages, mortgages with no payments for the first two years, and finally mortgages granted on nothing more than the applicant’s word. As with every bubble, it seemed to have no ceiling.
Of course it did. By the time everything blew up, home prices had already been falling for two years. Interest rates had risen, and with them the payments on adjustable-rate mortgages. Many homeowners couldn’t keep up. Since they owed more than their homes were worth, they couldn’t sell or refinance either. The result was an avalanche: four million homes were foreclosed in the United States over four years. In October 2008 alone, nearly 85,000 people lost their homes.
Unlike the dot-com bubble, this wasn’t just a market bubble. The whole of society had bought into the expectation of rising home values. So when it burst, instead of a tech index, it took down the entire international financial system. Banks found themselves buried under a mountain of insolvent loans and toxic products and stopped lending to businesses to avoid going under themselves. The world economy ground to a halt, its enormous gears screeching, while a stunned population looked on.
2019: The Unicorn Bubble
2008 wasn’t followed by another round of economic stimulus. For years, the watchword was austerity. This happened because, at the moment of the crash, the election campaign that would carry Barack Obama to the presidency was already underway. With just weeks to go before the vote, the Democratic candidate had no incentive to experiment with the economy. What followed was one of those rare moments of agreement across the entire political spectrum, crystallized by Obama in a single phrase: we had “lived beyond our means.” It was time to tighten our belts.
Years of cuts followed. Bankruptcies. Even entire countries went under. But while most of us were drowning in blood, sweat, and tears, in Silicon Valley, a portion of the capital that had once again been left without a purpose found somewhere new to play.
These were the unicorn years: companies like Uber, Airbnb, and WeWork reached valuations above a billion dollars by promising to put “co-” in front of everything: coworking, coliving, co-sharing. The Valley filled up with startups promising to “change the world” — and, crucially, with investors who had nowhere else to put their money and were chasing extraordinary returns wherever they could find them.
This new phase of the bubble brought two major innovations. First, for the first time, the story coming out of Wall Street and Silicon Valley wasn’t built on a new promise of growth for everyone — quite the opposite. In keeping with the spirit of the times, the plan was to make everything cheaper through collaboration and technology. The goal wasn’t growth, but efficiency. And to achieve it, traditional businesses were going to disappear, replaced by companies headquartered in the Valley. It was the first time Silicon Valley experimented with the idea that its fate wasn’t tied to that of the rest of humanity. They could come out ahead even — or perhaps especially — if the rest of the world lost.
The other great innovation of this bubble was a shift in investors’ risk tolerance. These unicorns were hard, almost impossible, to find. You had to go looking for them in a haystack of nerds, each one proclaiming their own little revolution. How could you know whether it would be the bike-sharing app or the micropayments startup that would make it? Investment, traditionally more conservative, started chasing promises of 100% or 1,000% returns large enough to offset the losses expected from all the startups that wouldn’t pan out. The idea was that enormous risk had to be assumed, so the companies that did succeed had to be extraordinary. Hence the name “unicorns”: mythical creatures with absurd growth.
During those years, the names that have since become household names began clustering together in the Valley: Mark Zuckerberg, Elon Musk, Peter Thiel, Marc Andreessen, Sam Altman and Dario Amodei, Jack Dorsey, Sam Bankman-Fried, Jensen Huang, Reid Hoffman, Vitalik Buterin, Sergey Brin, and Larry Page shared the same social and cultural substrate for years.
Beyond money and technology, they began to be united by an almost religious conviction that they were destined for a higher purpose. They were building the future, and the rest of the world simply belonged to an inferior class incapable of understanding it. That faith found its catechism, among other things, in the quasi-religion of effective altruism and in belief in the singularity: the idea that artificial intelligence would eventually surpass the human mind and trigger a technological change so radical and so fast that history, as we know it, would simply stop making sense. Was it a philosophy? Or is it a cult?
The unicorn bubble burst quietly: most of these companies never went public and simply dissolved in silence. The final death rattle came from WeWork in 2019 — a company that promised to turn office space into a software business (don’t ask me how, I no longer remember) and which failed spectacularly in its attempted IPO when it was discovered it had no viable plan to ever turn a profit. But that same year Airbnb and a few others went public, and, one way or another, the Valley managed to cover up its embarrassment.
2022: The COVID Bubble
WeWork collapsed in October 2019. By March 2020, Silicon Valley had been saved again — this time by the COVID lockdowns.
A new story took shape at the speed of light: we would live online. Digital companies would be the new real estate, and — once again — nothing would ever be the same. Valuations skyrocketed. Zoom went from being a video-calling tool to becoming the symbol of a new era. Peloton promised to reinvent the gym. Netflix, Amazon, Microsoft, and DocuSign seemed to have found a direct highway to the future. The pandemic, it was said, had fast-forwarded the digitalization of the world by ten years, and that change would be permanent.
As with the previous bubbles, this story was able to sustain a bubble for a while. The problem was that, as a civilizational promise, living life in front of a screen attending concerts over Zoom never quite seduced anyone. So it didn’t last long, and the little COVID bubble burst in May 2022 with another market crash — one that didn’t quite sweep everything away or spread into the broader economy, but wasn’t minor either.
Tech companies lost almost everything they had gained. Above all, it became clear that no further revolution was coming for digital economy companies. Google, Facebook, and the rest of Big Tech were no longer young upstarts destined to conquer virgin territory, but established giants managing rather aging empires. They were still extraordinary companies — but the exponential growth of their early years would not return, not even if the world turned upside down. Something else had to be invented.
The Bubble Factory
Seven months later, in December 2022, Sam Altman launched the first version of ChatGPT — the one that left us all speechless. By then, a great deal had changed.
The previous bubbles had burst, but they left behind an inheritance: an extraordinary concentration of investment expertise and engineers in Silicon Valley — that sitcom-like world where everyone knows everyone, has invested in the same companies, and convinces each other of things. In that environment, Altman, Musk, Amodei & co. had learned two things essential for their next adventure: how to behave like messianic leaders, and how to find people willing to finance the sect. They had built, as literally as possible, a bubble factory.
During those years, Altman had run Y Combinator, the Valley’s most important incubator. Its specialty was a particular type of company — ones capable of raising hundreds of millions of dollars in capital without ever having earned a single one. They were, quite literally, bubble companies. By then, the Valley’s business model had transformed: it was no longer about building companies that would change the world — that came later, for whichever ones survived long enough to go public. The actual activity was manufacturing bubbles: companies that absorbed investors’ money and could be passed from hand to hand long enough for everyone involved to make money off them.
That’s where Altman discovered the trick: the more revolutionary the technology you promised, the more capital you could raise without delivering concrete results. The bigger and harder the transformation, the bigger the bubble you could inflate. So he specialized in hard tech — nuclear fusion, quantum computing, synthetic biology — anything where the promise wasn’t an incremental improvement but a revolution.
And with ChatGPT, in 2022, Altman held in his hands the biggest promise of them all — a dream that has accompanied humanity since the texts of the Talmud, an idea that fills us with fascination and terror in equal measure: artificial intelligence.
And just as in 2000 and 2008, politics let itself be seduced by the sirens’ song.
By 2022, Joe Biden had spent years trying to reverse American deindustrialisation with massive investments. Nothing seemed to work. White working-class voters in the Midwest — the demographic that decides American elections — still weren’t seeing the change. Meanwhile, China was threatening industry after industry across the West with a determination no Western government knew how to counter. Governments embraced Altman’s thesis as if it were manna from heaven. Artificial intelligence! At last, the technology we’d been waiting twenty-five years for had arrived. Now, surely, we could trust that productivity would reignite and the world would return to the path of progress. This would be the technology that restored United States— and the West’s — global leadership.
The Great Tremor: The AI Superbubble
That is how the great tremor was forged: the latest, final turn of the screw on a bubble that has been brewing for twenty-five years. Just as it had in the 1990s, it was a pact of convenience between the Western political class and the technological and financial elites of Silicon Valley and Wall Street.
Every element rehearsed over the years made its appearance: the belief that Silicon Valley must lead humanity, even against its will; the appetite for risk and runaway expectations; the same dense network of acquaintances from twenty-five years back; the ambition never to actually deliver on a technology’s promises, so that it can keep existing as a bubble; and the messianic ideas of the singularity.
With that expectation-generating machine running, Altman, Amodei, Huang, and the rest of the AI evangelists built the largest bubble ever created. At breakneck speed, and often simultaneously, they promised the end of scarcity, the cure for cancer, the disappearance of work, total war, and even an artificial general intelligence that would wipe out the human species.
But three and a half years have passed, and none of this has come to pass. There has been no fourth industrial revolution. Employment figures show no impact from AI, nor do productivity figures. Some people still insist all of this is just around the corner, but there are fewer of them every day, and they speak more quietly.
Meanwhile, cracks have begun appearing all over the AI bubble. More and more voices are pointing out that the industry’s numbers are “impossible”, that companies aren’t finding any return on their investment, or that it's wise to hedge against what's coming, because there’s an obvious bubble about to burst.
And the problem is that, unlike the previous explosions, there’s nothing left after this one. Silicon Valley has overshot. They turned AI into a superlative, and there’s nothing bigger left to imagine. For the first time in twenty-five years, this bubble cannot burst and simply make way for another. If it explodes — and it will — it will mark the end of the Valley’s era. Perhaps Wall Street’s too. The only alternative on a comparable scale — one some are already exploring — is quantum computing, but it has a fatal flaw when it comes to manufacturing bubbles: it can be measured. It will become real the day someone actually builds it, and not a minute before. AI, by contrast, had the wonderful quality of letting you claim that what hadn’t happened yet was just about to.
This is how Silicon Valley and Wall Street became addicted to the bubble they themselves inflated: they can no longer exist outside it. It is, perhaps, the total bubble — the bubble of American leadership itself.
These days we’re living through the acute phase. The point of no return. Last week’s SpaceX IPO is the peak. The outlandish valuation, the sheer excess of pricing the company as if we could simply assume it will conquer Mars, the fact that nobody is even waiting for its economic fundamentals to line up with its share price — all of this will be remembered in twenty years the way we remember pets.com today: the pet food store that went public in 2000, spent millions on ads, and vanished nine months later, the perfect symbol of dot-com euphoria.
The Bubble That Never Stops
When I say I’m convinced we’re living inside a bubble that’s going to burst, people often praise my “courage.” How bold of me to make predictions! But there’s nothing of the sort. I’m not even really predicting anything. All I’m doing is studying the past and observing the present. That exercise alone is enough to show that the four bubble bursts of the twenty-first century aren’t isolated events — they’re manifestations of the same underlying cataclysm.
As if we were living on a geological fault line, we can trace, across the twenty-first century, two tectonic plates pushing against each other, producing these tremors from time to time. One is the runaway growth of capital. The other is the inability of industry — Silicon Valley in particular — to find anywhere for it to go.
The first of those plates is the growth of capital. In the second half of the twentieth century, saving became a mantra: life expectancy was rising rapidly, and retirement was becoming the foremost problem facing Western societies. States understood that people needed to take at least partial responsibility for their own retirement. In countries like Germany, saving became the primary way of contributing to society. Along the way, something extraordinary happened: for the first time in history, even the poor began to accumulate wealth.
But idle money loses value. For it to arrive intact at retirement, it has to be invested. That’s how private funds, pension plans, and the idea of housing as investment were born. Societies committed themselves, body and soul, to the notion that money, on its own, ought to produce more money.
And that is the question every bubble of this century has tried to answer: where to put such a mountain of capital so that it generates returns. An industry big enough to absorb it was needed.
Every time a bubble burst — or a crisis like COVID threatened to stop the wheel — governments responded the same way: with quantitative easing, monetary stimulus, and cheap credit to keep the party going. So, throughout the twenty-first century, every time industry failed to find a destination for capital, a bailout followed, injecting even more money in search of returns.
The result is that global wealth — including housing, savings, pension funds, and stock markets — has multiplied sixfold over the past twenty-five years, while the economy grew at half that rate.
Couldn’t it be that this time it’s different — that AI will finally deliver the productivity revolution that gives all that investment somewhere to go? I don’t think so. I explain this in more detail in another piece, but here’s the short version:
The reason technology produced an “industrial economy” throughout the twentieth century is that the knowledge needed to produce things was monopolized by a handful of countries and companies. Some countries could sell that knowledge, packaged as products and services, to the rest of the world. But when the expansion of universities became universal at the end of the twentieth century, that monopoly collapsed. Since then, the industrial economy we knew has been dying.
And none of this has anything to do with whether the technology actually works or not. The story of the last twenty-five years is one of an endless succession of extraordinary technologies — the internet, email, GPS, the web, blockchain, social media, and a list that never ends — none of which produced an industrial revolution. What we need to look at isn’t whether the technology works, but the fact that no technology, however well it works, can recreate the monopoly capitalism needed in order to find somewhere to invest.
The 1929 Crash
It’s often said that this AI bubble resembles the dot-com bubble of 2000. But that was the beginning of something. What we’re witnessing today, I believe, is an ending. This whole twenty-five-year process has far more in common with what happened in 1929.
In the early decades of the twentieth century, the mechanization of agriculture and the arrival of fertilizers were multiplying food production capacity and drastically reducing the labor needed on farms. The effect would have been obvious well before 1929, if it hadn’t been for the fact that during the First World War, American farmers had to multiply their output to feed Europe.
But when the war ended, they kept producing at the same pace, with nobody seemingly worried about who was going to buy all that grain. The result was inevitable: agricultural prices collapsed throughout the 1920s, farmers went into debt to survive, and rural wages hit rock bottom. It was an enormous crisis affecting millions of people — but it happened slowly, and out in the countryside, far from Wall Street, so Wall Street looked the other way. Until, in October 1929, it no longer could. The stock market crashed and produced the largest recession known until then.
Something similar is happening today, a century later, with industry occupying the place agriculture occupied back then. We have reached the end of the industrial era the way 1929 marked the end of the agricultural era, and for the same reasons: the spread of the knowledge needed to manufacture things has broken the monopoly developed countries held a few decades ago. Today we can produce infinitely more, with far fewer people. That abundance has crashed the prices of the industrial economy.
Just as in 1929, the jobs that sustained the middle class throughout the twentieth century are disappearing, wages have stagnated, and entire regions — the American Midwest, the north of England, much of inland Europe — have been left behind, with nobody quite sure what to offer them instead.
The difference is that, this time, the debt is being carried by countries rather than households. That’s why public debt is soaring everywhere in the world. But the underlying phenomenon is essentially the same.
Reasons — Always! — for Optimism
As happened in 1929, when this bubble bursts, what we’ll face won’t just be an economic crisis — it will be an enormous existential one. Millions of people who had found their place in the world through work won’t know what to do, just as the armies of farmers in the 1930s had to move to cities and start entirely new lives.
It will be a time of considerable fear, as change always brings. But if we can see it coming, if we can understand it, if we can grasp that this isn’t a crisis of life itself but a necessary stage we must pass through on the way to a better future for humanity, then we can seize every opportunity this new era offers.
We are the children of optimism (Los Hijos del optimismo). And we have nothing to fear
.