Is Instagram's acquisition a (necessary) damage to the economy?
This question in the title can be further generalized to apply to all of the startups whose success or acquisition is questionable. Meaning that people either make fun of it or are not quite sure what the money has been payed for.
The question boils down to the usual struggle between the left and right. The left would appropriately make fun of the stupid market which chose to make a particular startup a success. The right would reasonably speak about the free market which is what it is. I'm not an economist and I deliberately chose not to adhere to one of these points of view (even professional economists disagree with only about 50% going in favor of market regulation). However it's an interesting question to answer in terms of our particular industry.
Everybody in the industry who does startups knows that even people who are working on a relatively useless social networking app (which Instagram is) are working hard and deserve to be rewarded. The nature of a startup doesn't make the day to day work any easier. On the other hand, we still question the behavior of the consumer and the market. It seems to me at times that market rewards startups that are mostly entertainment, but are not really solving any problem. The last success I can remember solving an actual problem, for which I personally paid money and which I would recommend to probably every person I know is Dropbox. Yet there's Twitter, Facebook, Instagram, Formspring... They don't matter. Or should I say they seem easy. Because anyone could have done them (at least before the scaling phase, and then money solves the scaling problem well). However I'm pretty sure not anyone could have done Dropbox.
So does it mean that the majority of our society is incapable of spending money on meaningful things? Probably yes. These days people want cool pictures, not education or solving real problems with software. But that's fine. Fine as long this keeps changing at some, even slow, pace. The hypocrites who tell you people are smart are wrong. Truth is people are always not smart and I'm not really smart either - I too have spent some amount of money on things I don't need in my life. But we are capable of becoming smarter and making our children smarter.
And if so, the ridicule coming for some of the startups may not change the behavior of the market overnight, but it may change it in the long run. I hope someday people will be as concious about the uselessness of certain things and wasting their time as they are now concious about the dangers of eating fastfood. Teaching something is a process. And so, the economy as a whole might have needed to spend those $1 billion payed for the Instagram. Hopefully, we will see more meaningful startups in the future. Unless, of course, this heats the bubble even more.

