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question 3: The Bubble's Real Costs, the Internet's Real Value
What have we learned, or failed to learn, about the Internet's real importance? And what might this suggest about the true cost of the Internet bubble, not just in economic terms but in social and even political terms? That is, what was the "opportunity cost," so to speak, of lavishing so much money, energy, and media attention on the Net economy? Now that the dust has settled, can we see any more clearly the Internet's real value?

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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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.

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

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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 will fail.

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).

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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.

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

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.

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

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 very foolish.

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 obvious culprits.

If there is one place where markets have failed us consistently and disastrously, it's the marketplace of ideas.

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