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.
I'm not sure there were many lastingly harmful "opportunity costs" of
the bubble mentality. Yes, yes, yes: I recognize that all kinds of harm did
occur. There were innocent financial errors. There was malicious financial
misrepresentation. There was even a significant opportunity cost to the "real"
economy. I've recently published a book, Free Flight: From Airline Hell to a
New Age of Travel, which is in large measure a story of that opportunity
cost. Some real inventors, who came up with a real, tangible, high-technology,
manufactured product -- namely, a safe, fast, small jet that cost roughly
one-tenth as much as existing corporate jets, and therefore could be
used by a much broader traveling audience -- nearly went crazy trying to raise
capital in the late 1990s, because the herd instinct was leading venture
capitalists to "interesting" Net startup ideas.
Still, I think the opposite over-reaction, after the 2000 Nasdaq crash,
against the Internet and anything associated with it, could be almost as
harmful. Eventually people are bound to do more and more of their purchasing
online. It would be insane for them not to -- it just allows you to do things
more quickly and with more information. Eventually more and more news and
"content" will be distributed that way. In the late 1990s we saw some basically
crazy ideas propped up by herdlike funders. After the crash some basically
sound ideas were torpedoed by the same herd reaction. After all, something like
WebVan will eventually make money, as will something like the late, lamented
wireless internet system, Ricochet. The volatility that drove the market up
three years ago drove it back down starting early in 2001. This, I suppose, is
capitalism in action -- "animal spirits" and all. And of course the dramatic
change in political, military, and economic circumstances since the Sept. 11
terrorist attacks makes it even harder to know how and when the technology
puzzle will sort itself out.
He is the Stanley B. Resor Professor of Economics at Yale University and the
author of Irrational Exuberance (2000).
The Internet is a very important invention that will have important
consequences. But the extent of the consequences is very hard to quantify. The
quantitative importance of the Internet will never be fully known, even after
another century has gone by.
By analogy, what was the real importance of the invention of the railroad for
the 19th-century economy? There was a famous debate on that topic between Prof.
Robert Fogel of the University of Chicago and Prof. Albert Fishlow of UC
Berkeley in the 1960s. They tried to figure out what the relative costs of
other modes of transportation were, what canals would have been built if there
had been no railroads, and so on. Fogel concluded that the railroad raised
gross national product by less than 5 percent total over the century, while
Fishlow thought it raised GNP by more than 15 percent. No one has ever resolved
the discrepancy between their two numbers. The repercussions of any such major
technological advance are so manifold, and we can never know what alternative
technology would have invented around the problems that the railroad solved.
The same will be true of the Internet. The repercussions of the Internet will
be complex, involving whole new lines of business, even businesses that have no
obvious connection to the Internet. When the information infrastructure
changes, all manner of new businesses become feasible and many old businesses
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'm actually not sure that the costs of the bubble were all that great, even
though I think it triggered, or facilitated, a lot of ludicrous behavior, and a
lot of posturing. There weren't a lot of good ideas that got trampled in the
exodus, as far as I can see. ... The good ideas -- the eBays and the Amazons
and the Yahoos -- are doing quite well, by any sane measure. Some individual
investors lost some money speculating, but how much can you grieve for an
investment community that consults -- and contributes to -- a semi-sacred
oracle that calls itself the Motley Fool? And a lot of 25-year-olds found out
that it actually wasn't all that easy to make a million dollars.
What the bubble did do, though, is popularize the medium at an
unprecedented pace, and explore the possibility space of interesting Net-based
models with incredible precision. My 89-year-old grandmother one-click shops on
Amazon via her cable modem. Would she even be using email now if it weren't for
the bubble? I doubt it. So in a way you can see the last five years as a giant
public-awareness campaign about the virtues of the Web, financed mostly by the
venture capitalists. Kurt Andersen described it best in a piece he wrote about
a year ago: almost nobody made money in the gold rush, but the gold rush made
California. That's where I think we're living now, at the very beginning of a
kind of new-economy "California," with the forlorn prospectors coming down from
the hills, looking for better and more sustainable things to do. Not such a bad
place to be.
Chief economist at BusinessWeek, he is the author of The Internet
Depression: The Boom, the Bust, and Beyond (2001).
With any new technology, there's a process of experimenting, of trying to
understand where it is useful and where it isn't, and figuring out how to apply
it. It's often very hard to predict what the ultimate applications of a new
technology will be.
Part of the genius of the American New Economy -- and one of our great
advantages over Europe and Asia -- is that it permits an accelerated rate of
experimentation with a new technology like the Internet. The availability of
capital meant that we could try a lot of different approaches at once, to see
which ones worked.
Here's what we found out. First, the Internet has only an incremental benefit
as a channel for retailing. Ultimately, retailing is mostly about producing and
moving around goods as efficiently as possible, and the Internet doesn't bring
all that much to the party. Thus, the great dotcom experiment -- moving all
manners of retailing onto the Web -- turned out to be mostly a failure.
But we also learned that one of the biggest virtues of the Internet is that it
revolutionizes the transmission and manipulation of information. We have not
fully exploited this yet, but I think that over the next ten years, the
Internet will transform those industries which are primarily about moving bits
and bytes around. That includes media, financial services, and a large portion
of health care.
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).
I don't know what the Internet's real importance will eventually turn out to
be. I myself use it to hunt for World War I memorabilia. I do know that it's
not the libertarian deity that it was presented as being; it's not some sort of
angry free-market god with zero tolerance for government regulation or labor
unions. Ironically, there is probably no better proof of the idiocy of markets
than the dotcom stock frenzy, in which investors poured such huge sums on such
tenuous enterprises. Far from being omniscient, markets can be very unfair and
But have we learned this lesson? Have we changed our ways? Are we ready to
secure economic democracy by turning to institutions other than unregulated
markets? No. At least, not if you read our newspapers and watch our TV
commentary. On Labor Day, two of the three newspapers I read regularly featured
op-ed columns that actually used that occasion to dismiss the labor movement as
irrelevant, unpopular, and in terminal decline. Our president has actually
managed to repeal the inheritance tax, one of the fundamental pillars of
progressive taxation. We have a government commission willing to distort any
set of figures to discredit Social Security. George Gilder still appears on TV
talk shows as a distinguished authority figure. Certain Ford dealers still give
customers gratis copies of The Millionaire Next Door, and certain CEOs
buy thousands of copies of Who Moved My Cheese? to cram down their
employees' throats. The authors of Dow 36,000 are routinely quoted in
the papers as experts on matters economic. When reporters are assigned to cover
a strike or a lockout, they still quote Wall Street analysts as experts on the
subject. And we have an entire cottage industry trying to pin the blame for the
recent stock market disaster on anything and anyone except for the
If there is one place where markets have failed us consistently and
disastrously, it's the marketplace of ideas.
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