That, in a nutshell, is the definition of a bubble.
And the world has seen several bubbles. Even recent memory brings the telecom bubble and the dotcom bubble and of course the freshly collapsed property bubble to mind.
The Economist has an interesting article this week about the possible benefits of bubbles.
The basis thesis is that even as bubbles lead to wild speculation, fly-by-night operations and monumental crashes down the road, they often leave something useful behind. Something which could not have been achieved in such a quick time-frame without the mad flow and reallocation of wealth that a bubble brings with it.
It is a view that I find appealing. At least in the case of the dotcom boom I witnessed this first hand. While the bulk of the companies ran thru their venture capital in record time, the crop of this boom was also a massive acceleration in web technology and a huge crop of trained and experienced people who understood this new technology. Web 2.0 could not have happened without Bubble 1.0 - at least not so soon.
Much as we like to think that the world moves in a well orchestrated way under some grand master plan, the fact is that some of the most interesting turns of events in history are accidental and fueled by bubbles.