tl;dr: Not suprisingly, they go hand-in-hand. Short-term behaviors and long-term consequences.

The other day, in the post Speculation throughout history based on the book Devil Take the Hindmost: A history of financial speculation by Edward Chancellor, I started to explore the idea of patterns of behavior when it comes to speculative fervor.

Now, I’m not an expert on this by any stretch, the Jedi is Carlota Perez and if you haven’t read her book Technological Revolutions and Financial Capital, you’re missing out in a big way.

What Perez talks about, among other things, is how the speculative phase is a necessary pre-condition for the arrival of the maturation and distribution phase.

If you don’t have “irrational exuberance,” in other words, you’re never going to attract the capital (and talent) necessary to help the new technology achieve anywhere near its potential.

Perez looks at these epochs in 40-80 year periods, not 1-3 year periods.

Meanwhile, politicians and financial regulators do.

And that’s the problem.

It’s natural, for example, for regulators to look at the 2017 crypto/ICO boom and find plenty of speculative fervor and plenty of fraud. No doubt that happened and it should be punished.

However, an overcorrection against the speculation risks impacting the country in a much longer, more profound, albeit less obvious way, one that is well beyond the purview (if not the lifetimes) of the very same politicians and regulators who clamp down on the speculation.

As Chancellor writes, and admittedly, this is his opinion so take it with some salt, but anyway:

“There were more profound consequences to the events of 1720 than Adam Smith acknowledged. When he published The Wealth of Nations in 1776, the Bubble Act, which hindered the foundation of companies (by requiring that each receives its own act of Parliament), and Sir John Barnard’s Act, which outlawed many of the techniques of speculation, were still on the statute book.

As a result, the progress of financial capitalism in the eighteenth century was retarded and joint-stock companies contributed less than they might otherwise have done to Britain’s Industrial Revolution (although other types of organisations, such as mutual companies, thrived in their place.)

See Chancellor, page 90

This is my (admittedly biased), but fundamental concern about the regulatory initiatives that are going on now vis a vis crypto.

It may shut down some of the bad guys today, but the cost to all of us (both in the present and the future) is invisible since it’s an alternative universe that will never happen.

That world will deal with stifled innovation and lack of financial competitiveness (which will all happen on crypto/Web 3 platforms) because the new projects and companies will never get formed, at least not in the US.

Of course, that’s a really hard sell to a politician who needs to get re-elected next year and a regulator who just wants to keep her job.