Co-founder and editor-in-chief of the online magazine FEED (feedmag.com), he is
the author of two critically acclaimed books on technology and society:
Interface Culture (1997) and Emergence (2001).
I think before you can answer this question, it's important to stress that the
Net medium never existed in a pure vacuum, where its intrinsic properties could
do their thing in isolation. What happened in the late 90s was not just the
birth of a new, more democratic and distributed medium -- it was also a clash
between that medium and the traditional mass media. Certainly in the U.S., at
least, I think it's fair to say that the top story between 1995 and 2000 was
the rise of the Net and its social and financial implications. (Maybe the
Lewinsky scandal was bigger, but even that played out on the Web in important
ways.) Everything that happened on the Web was immediately broadcast out via
the mass channels of big media. It was a bit like attaching this fledgling new
medium to a giant loudspeaker -- which was ironic, since one of the "intrinsic
properties" of the Web is its antipathy to loudspeakers. ...
I think you have to keep this in mind when you look at the role that the Web
medium played in the dotcom financial bubble. The Web participated in that
bubble by doing things that were genuinely cool and genuinely useful and
genuinely unlike anything that had come before them. (Remind yourself how
amazing it was when you first used a working search engine, or first bought
something on eBay.) That generated a lot of hype, which attracted mass-media
attention first, and then VC investment, and finally public investment via the
endless summer of IPOs that lasted until mid-2000. Along the way, the hype
about what the Internet was good for shifted from the relatively accurate hype
about how it might change the way we communicate with one another to the
lamentably short-sighted hype about the "long boom" in which the Web would
change the fundamental laws of capitalism. (Never have so many so-called
futurists been proven so wrong about the future in such a short amount of
time.) I don't think it's stretching matters to say that the economic hype was
primarily emanating from traditional media: print magazines like Fast
Company and Business 2.0 and Wired; TV networks like CNBC or
CNNfn. Sure, The Street.com and the Motley Fool may have played a part, but I
don't think their contribution was particularly dependent on their being Web
properties in any way.
The one place where it's probably fair to say that the Web as a medium
contributed to the bubble is the day-trading/individual-investor phenomenon.
It's clear that the Web does give individuals power that once was the exclusive
province of "experts" -- and nowhere was this more evident that in the rise of
the day trader. Of course, that rise was largely propelled by the mass-media
hype mentioned above, but the fact is that the Web enabled a huge influx of new
buyers into the marketplace -- buyers who were often more willing to ignore the
traditional rules of investing -- and that influx necessarily drove up the
prices of hot stocks to stratospheric levels. But the correction eventually
came around, and we seem to have hit a more rational equilibrium point. And of
course, beneath all of this, the Web has plugged away steadily, becoming
increasingly essential to hundreds of millions of people's everyday lives.
National correspondent for The Atlantic Monthly and a former columnist
for The Industry Standard, he has written extensively about technology,
economics, and politics for more than two decades.
It's intriguing to think that the very nature of the technology at the heart of
this financial bubble made the bubble's expansion, and inevitable collapse,
more violent or volatile than they might otherwise have been. And it is
probably true that the unprecedented velocity-of-gossip created by Internet
technologies made the financial climate extra nervous and panicky, both on the
way up and on the way down. I may be one of the few computer-owning Americans
who has never bought or sold a stock online, never looked for stock tips on
Motley Fool or Yahoo chatrooms, never tried to get early shares of an IPO. But
even I knew all this was going on around me, and felt vaguely nervous not to be
part of it. That made me feel like a chump during the boom years, and leaves me
with vague dread during the slump years. After all, those other people's nutty
speculative habits are dragging down even careful, stolid types like me!
However: I still think that the exact nature and effect of Internet technology
was less important in creating the bubble, compared to the simple fact that the
technology was new. Because it was new, a lot of people making
investment decisions didn't really understand it. (I'm being generous, as you
know if you ever saw some financial "analyst" -- on CNBC, for example --
look puzzled when hearing a term like "URL.") Because it was new, even people
who did understand it couldn't really be sure of what its full business
potential might be. Because it was new, it was like other bubbles we've
experienced before -- ones involving the oil industry, or newly opened land in
Florida or the West, or biotech, or the spice trade with India centuries ago.
Like other aspects of modern life, this one was bigger and faster than its
predecessors, but the fundamental impetus was the same.
Is there any reason to think there's necessarily something new, in the sense
of level playing fields?
We have learned from other technologies that they are not inherently
democratizing or "leveling." Despite the existence of telephones and
electricity and automobiles and computer chips, we still have bosses and
hierarchies. On the other hand, each of those inventions has generally and
eventually seemed part of a worldwide progress that has made life freer and
more equal for most people. I think information technology will, generally and
eventually, be part of that evolution too.
He is the Stanley B. Resor Professor of Economics at Yale University and the
author of Irrational Exuberance (2000).
The Internet, and related information or communications technology, is helping
to integrate world markets -- not just financial markets, but every market,
even the labor market. People in remote places of the world are no longer so
cut off from the world economy. People in Calcutta or Shanghai can now do
office and telephone work for New York and Hong Kong. Maybe you could call this
"leveling the playing field."
But, in thinking about this, we must remember that some of us may be the losers
when we face new competition from afar. The Internet certainly breaks up
the playing field, creating new losers and new winners. But, this
effect may not be to level incomes. On the contrary, it may make them more
unequal. Improved information technology can enhance a "winner-take-all"
economy, where a few people are able to monopolize the market better.
Is there something about the Internet itself, as a medium, that fed the
Public impressions of technological progress are heavily influenced by our
personal involvement in the new technology. When radio stations first started
appearing in the United States in the early 1920s, and when radio shows began
to be as engaging as our modern TV shows (though without the picture) by the
late 1920s, people had the very visceral sensation that important new
technology arrived. The Internet has given a similar sense of remarkable
progress. But, this sense is substantially exaggerated in our minds.
Chief economist at BusinessWeek, he is the author of The Internet
Depression: The Boom, the Bust, and Beyond (2001).
The Internet clearly allows access to more information than ever before.
Combined with regulatory changes, investors now have easy access to all the
public documents, the earnings conference calls, the background information.
In that sense, it really has leveled the playing field, when it comes to
Moreover, small investors weren't being deprived of accurate information.
There was plenty of negative or cautionary information out there if people
wanted to read it. I can make a long list of well-known journalists and market
strategists who repeatedly warned of the downside risk. For myself, at the same
time I was writing positive stories about the long-run benefits of the New
Economy, I was also writing negative pieces warning of the possibility of a
But there's one important thing to remember. Having more information does not
necessarily make a system more stable. In fact, the nature of the New Economy
-- with its close link between technology and the stock market -- makes it less
stable rather than more. On the upside, each innovation in technology fueled a
rise in the stock market, which provided more money for the next round of
innovation. That was the upward spiral. But technology and finance feed off of
each other on the downside as well.
So would the bubble itself have been as inflated if not for the role the
Internet played in the flow of information and communication. Is that one way
in which "technology and finance feed off of each other"?
Did the Internet itself contribute to the stock market bubble of the 1990s?
Only to a small extent. In reality, both the Internet and the soaring stock
market were caused by the same factor -- the rush of money seeking higher
returns from a new wave of innovations. Risk capital funded the dotcoms and the
new telecom companies. Risk capital also poured into the stock market, hoping
to get a piece of high returns.
Editor of The Baffler magazine and a contributing editor of
Harper's, he is the author of One Market Under God: Extreme
Capitalism, Market Populism, and the End of Economic Democracy (2000).
Democracy through investing seems to be a recurring dream of the financial
industry, cropping up whenever a really impressive bull market is burning up
the charts -- the 1920s, the 1960s, the 1990s. After all, you can't have much
of a bull market without mass participation, and you can't have mass
participation without the general public feeling secure about participating.
The other reason Wall Street periodically spins such elaborate fantasies of
democratization is that it looks forward to a world where the common people
have come around to their way of thinking, have bought shares and are ready to
agree that corporate taxes have to be lowered, that Social Security has to be
privatized, that the unions have to be busted and the work outsourced, that the
regulations have to be rolled back, that environmentalism is a crock.
Wall Street really doesn't welcome economic democracy, as the term is
properly understood -- a more equal distribution of wealth, powerful labor
unions, an elaborate social safety net, a well-paid working class, and so on.
But during the 90s it made a great show of embracing a sort of cultural
democracy, always announcing their belief that the People knew best, that the
little guys are finally claiming all the big percentage gains for themselves,
that they're humiliating the hated WASPs, that they're pouring down the marbled
halls of Wall Street and whipping the "smart money." This is a vision of
"revolution" that Wall Street holds dear, that it encourages, that it brought
to life for us in a hundred different brokerage TV commercials in the late
So when the Internet did finally come along, it was simply plugged into this
existing storyline. You mention two of the ways in which this was done: Trading
and researching online. These are important, of course, but I suspect their
impact has been exaggerated.
The Internet's greatest impact, in my opinion, was as a symbol and as an
investment. Everywhere one turned in the 90s one heard how the Internet had
brought more social advance in a few years than ever before in history, how
this miraculous, mysterious device had empowered people to a degree that was
basically incomprehensible, how it had inverted the old hierarchies of boss and
worker, of first-world and third-world. This was God Himself coming down to
earth and telling us that markets were democracies; that the corporate way was
the only way; that regulation and taxation were fundamentally wrong; that
organized labor was obsolete; that free trade was the one true path. It was
capitalism's second coming. It was opportunity incarnate.
So naturally we wanted a piece of it. ...
You ask whether the dotcom mania was the product of a few "new demagogues."
Maybe it was, in certain very particular cases (i.e., Jim Cramer picked this
stock rather than that stock). But I think the blame has to be spread more
widely. After all, the worshipful tech chorus of the late-1990s sang out from
Time magazine and the MIT economics department and the Heritage and Cato
institutes and the floor of Congress and The Wall Street Journal just as
loudly as it did from Wired or Merrill Lynch or CNBC. The entire
American establishment puffed for this one all together. How so many got the
story so wrong is the real cultural question here.
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