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question 2: the new economy talk
Economists will be debating the "new economy" -- whether or not there really is, or was, such a thing -- for years to come. But what about the rhetoric of the "new economy"? It has become a cliché that the "new economy" thinking drove the Internet boom and that the concept was revealed as hollow once the bubble had burst. This is where the dancers on the dotcom grave seem to be dancing most gleefully. What role did all the talk about a "new economy" really play in the Internet boom and bust?

Robert Shiller
He is the Stanley B. Resor Professor of Economics at Yale University and the author of Irrational Exuberance (2000).

read the extended interview

There has always been a "new economy," every decade since the beginning of the industrial revolution. There have been so many important inventions over the last century that brought us from the horse-and-buggy days to the pampered situation we find ourselves in now, and brought life-expectancy up from 45 years to 80 years. If the next decade is as good as those of the last century, we should count ourselves very lucky. And I think that there is a good chance that the new information economy can help sustain this same level of economic growth that we saw for the last century.

James Fallows
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.

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Just about everything concerning the Internet phenomenon benefits from separating the short-term from the long-term view. For instance: we know that in the short term the Internet has not really changed the balance of power in politics or eliminated the importance of national borders. What it will mean in the long run is another matter -- it would be like trying to foresee the full impact of automobile culture in 1905.

So too with "New Economy" rhetoric. With the advantage of hindsight we can say what the short-term importance of that phrase was during the bubble years. It was a way for everyone to rationalize what was, by any normal standards, irrational behavior. Two hundred dollars a share, for a company that's never made a profit? Sure! Don't you know how the New Economy works? And to give credit where it's due, not everyone who thought or talked this way was a huckster or an idiot. There are times in history when assumptions and operating rules change, and the people who fail to shift their thinking are the ones laughed at in retrospect. ("Those Orientals will never be able to build cars for American roads." "The customer will never need more than 48k of computer memory.")

I suspect that, fifty years from now, we'll see that information technology created a "New Economy" very much in the way that electricity, the telephone, gasoline and oil, and antibiotics-and-immunization did. That is, it will remove many barriers and limits previously assumed to be insuperable, and will be so important that its role will almost become invisible. To take one example: the same mainstream financial-and-media world that now hoots about the "absurd" Internet stock bubble still under-appreciates, in my view, the impact of the "eBay model" of doing business. The idea that millions of people can deal directly and independently with millions of others has sweeping implications, which we're only beginning to explore. To the extent people in the media world notice the "eBay way," they think of it as a way that oddballs can trade baseball cards with each other. I think it's more important than that. In the long run, I'm a New Economy optimist. In the short run, with all appropriate allowance for the people who were cynically fleecing the masses, I understand why people used the term while the bubble was being puffed up.

Michael Mandel
Chief economist at BusinessWeek, he is the author of The Internet Depression: The Boom, the Bust, and Beyond (2001).

read the extended interview

Many people misunderstood the true nature of the New Economy. They assumed that the Information Revolution and the Internet had eliminated recessions, and that the economy and the stock markets were now on a permanent upward trajectory. In some cases this was explicit, when journalists would write about the end of the business cycle. In other cases it was implicit, when market analysts and corporate executives would predict 20 percent growth in revenues as far as the eye could see.

But they completely missed the point. The New Economy is more risky than the Old Economy, not less. There is a lot more reliance on innovation and high-risk investments to drive growth, which is great when the innovations pan out. But when big gambles, such as the dotcoms, fail to pay off, then the whole economy suffers.

Actually, this is probably the biggest mistake that investors made. Because they didn't understand the high-volatility nature of the New Economy, they took far bigger risks than they should. They didn't realize that by investing in new initial public offerings, they were effectively taking the same risks that venture capitalists do -- which means facing the possibility that a lot of your investments will go bust.

But were the (real) venture capitalists -- by pushing many of these dotcoms to go public far too early in the game -- exploiting the public's willingness to take these gambles?

If someone offers to sell me a lottery ticket, is that exploitation? No. People wanted a piece of these deals, they begged for a piece of these deals. I would much much rather err on the side of encouraging people to take risks, rather than discouraging them.

Thomas Frank
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).

read the extended interview

Theories that we had entered a "New Economy" mainly hinged on a lot of millennial ideas, all of which implied that the historical problems of free-market capitalism had been solved by technology -- and that therefore government regulation, taxes, labor unions, etc. were no longer needed. As it happened, these theories were mostly invented and trumpeted by people who already believed that government regulation, taxes, labor unions, etc. were bad things. Among other things, they told us that the business cycle had been suspended, that tech companies now enjoyed perfect information, that the economy could no longer be measured, that brands were more important than anything else, that entrepreneurs were near-divine figures who should not be restricted in any way, that old ways of valuing property and businesses and stocks were no longer meaningful, that options would make up for lost wages, and so on.

This was clearly more ideological than it was factual; more of a quasi-religious phenomenon than a description of what was going on in the world. Yes, there was technological advance in the 90s, as there has always been. But the really big change, in my opinion, was the widespread acceptance of an idea I call "market populism," the increasing conviction of a huge swath of Americans (journalists, politicians, and above all business leaders) that laissez-faire, free-market capitalism was the quintessence of human freedom; that markets expressed the popular will in a manner that government could never do; and that business would inevitably and rightfully triumph over its enemies -- the welfare and regulatory state, organized labor, and social critics. This cultural change is how I define the "New Economy." ...

Let me also say a word about what you call "the dancers on the dotcom grave," or the "schadenfreude" that they are constantly lamenting in The Wall Street Journal. No one is happy when hard times return. The people who are hurt worst in such scenarios are always the small investors who got in at the very end, and also the workers at the very bottom of the corporate flowchart, who lose their jobs. Many close friends of mine were badly hurt by the collapse -- they bought in at the very top, just like the gurus told them to do -- so it's hardly a subject for levity around my house.

The real issue is, Who gets the blame? All this talk about "schadenfreude" is just an attempt to direct public attention away from the real culprits -- the people who puffed the bubble -- and onto their critics, on those who dared question "New Economy" thinking. If we had all just believed, they tell us now, everything would have been fine.

Steven Johnson
Co-founder and editor-in-chief of the online magazine FEED (, he is the author of two critically acclaimed books on technology and society: Interface Culture (1997) and Emergence (2001).

read the extended interview

The whole idea of the new economy is a bit like the Gaia hypothesis: there's a strong version and a weak version, and one is more compelling than the other. There was a kind of "Squawk Box" version of new-economy theory, which basically revolved around the possibility -- or rather, the extreme likelihood -- that the Dow was headed straight to 20,000 and the Nasdaq to numbers that exceeded the capacities of our simple primate minds. That was the "what-goes-up-doesn't-come-down-anymore-thanks-to-Moore's-Law" notion of the new economy, and it was as bogus and transitory as the share price of

The other new-economy notion is more intriguing, and more valid I think, but it's about a change that will probably take fifty years to unfold, not five. As a planet, it's worth remembering that we're still only halfway through the transition to the industrial age, and the ultimate consequences of that shift are still very much up in the air. The information revolution -- which is the more interesting, and more valid, version of the new economy hype -- might take a little less time to play out, but it's still a process that we're at the very, very beginning of. The boom and bust of the last five years will be a footnote when the ultimate histories are written, just like the industrial boom and bust cycles of England in the 1830s.

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