Although tech bubbles burst, they leave legacy of innovation

During the Thanksgiving holiday, I'm thankful for a lot of things. My family, friends, health and my ability to put turkey on the table by writing about technology. I'm also thankful for bubbles.

You know, those booms followed by busts, such as the one we had in 2001. It felt like a ghost town here for a while. A lot of people lost their jobs. They arrived in Silicon Valley like 49ers, eager for easy gold. Many got here too late and didn't realize the real money was in selling picks and shovels. Bankruptcies followed. I'm not thankful for that part.

But without an inflated belief in the future, entrepreneurs wouldn't take crazy risks. Little companies like John Welch's PlayFirst casual-video-game company were starved for cash in 2003.

But Welch scraped together a team, raised a small round of venture money, created a publishing company for simple, arcadelike games that entertained people who didn't have a ton of time to play hard-core games — and thus contributed to the valley's recovery.

A lot of people are worried about the madness returning. Traffic is building up on our highways. Housing prices are still crazy even as prices drop in the rest of the country. If you sneeze "clean tech" at venture capitalists, they will cut you a check for $5 million.

Web 2.0 companies such as Facebook — which take user-created content and create a Web service around it — are enjoying their day in the sun. Hundreds of wannabe companies are being formed that combine social networking with things like cleaning your toes.

Picking a particular winner seems like madness. But we have reason to believe the Darwinian process of weeding out the weak ideas will yield great companies that allow Silicon Valley to pull ahead of other regions.

The last bubble cost us companies such as Pets.com and Webvan, an online grocery-delivery service. But it also helped develop the Web to the point where Yahoo and Google could succeed.

All of those zillionaires at Google are going to spend money getting their new cars waxed. Whether you agree with trickle-down economists or not, something has to trickle down into the local economy.

The new bubble companies will see their valuations rise and then come crashing back to earth. In his new book "Pop! Why Bubbles Are Good for the Economy," author Daniel Gross argues that bubbles are not to be feared. He credits them for "America's remarkable record of economic growth and innovation."

It's rational to stay on the sidelines and not get involved after having seen the aftermath of the last bubble. Early investors in railroads lost their shirts, as documented in Stephen Ambrose's "golden spike" railroad history "Nothing Like It in the World." But consumers and businesses later benefited from the infrastructure they built.

We got cheap Internet access thanks to the bubble makers who put a bunch of fiber-optic cable into the ground and across the oceans.

When it comes to clean tech and Web 2.0, I don't really care if they are now in the boom or bubble stages. They're creating jobs, just like FDR's social programs in the 1930s, even as we lose tons of jobs to outsourcing.

Surely some investors will be lucky enough to invest at the right time and pull out when it overheats. Investors are likely to make a mint.

Times are tough in many parts of the world. We've got a war in Iraq. Pakistan isn't looking stable. Natural disasters are hitting places such as Bangladesh. Many parts of this country are suffering from housing woes and crazy oil prices.

Silicon Valley is, too. But the stability of the tech industry and the growing interest in everything green have been heartening.

So bring on the bubbles!

Dean Takahashi is a technology columnist at the San Jose Mercury News.