What Dubai chocolate and Dogecoin have in common

In a surreal, attention-seeking economy, dangers lurk in the pursuit of hot meme stocks.

- Tim Harford

In the 1630s, Adriaen Pauw was the closest thing Holland had to a prime minister; he was also fabulously wealthy. To display his wealth and good taste, Pauw commissioned a tulip garden filled with cleverly positioned mirrors.

The heart of the garden was a sprinkling of the rarest tulips, multiplied by the mirrors into a bountiful array. The rarest bulbs cost as much as a house; even a plutocrat such as Pauw could not afford to fill his garden in the conventional manner.

The tulip mania of 1636-37 has become a touchstone whenever there is talk of a financial bubble. Perhaps that has given us a false sense of what bubbles really look like: frivolous, transparently silly, obvious to anyone with a brain.

The tulip mania was frivolous, to be sure — it was built on the willingness of rich men such as Pauw to spend vast sums acquiring tulips.

But its foundational frivolity wasn't the greed of speculators but the whims of rich consumers. If Dutch high society was willing to pay so much for the flowers, was it really absurd for investors to spend lavishly on a bulb that could produce more bulbs, each one also producing a rare flower?

And let's not fool ourselves that we can do better. Many of the most notorious tales about the tulip mania come to us through the Victorian journalist Charles Mackay and his vivid but overblown book Extraordinary Popular Delusions And The Madness of Crowds.

Mackay wrote newspaper editorials during the railway bubble of the 1840s and reassured his readers, "We think the alarmists are in error, and that there is no reason whatsoever to fear for any legitimate railway speculation." The bubble of the 1840s burst shortly after. Perhaps spotting a bubble is not as easy as Mackay's book made it seem.

TULIPS AND MIRRORS

What we can say about financial markets today is that, whether or not they are in a bubble, they keep flirting with the surreal.