The Wasteful Dotcom Bubble
The celebration of bubbles as delivering wonderful excess that the next generation of entrepreneurs can spin into more down-to-earth uses is an attractive proposition by folks like Daniel Gross, but it ignores the opportunity cost of what WASN"T invested in during the speculative flurry. Bubbles are a suck for capital, for labor and most of all for creative skills that are pulled away from more useful endeavors. When the best and brightest minds are focused on useless dreck (can we all say Pets.com), they aren't focused on real innovation.
And the idea that we now have lots of useful excess broadband fiber is true, but largely irrelevant since what was most neglected in the dotcom boom is laying fiber to the home so people could actually use these wonderful Internet doo-hickies. And the result was that the US slipped from world Interent leader to only 16th in the world interms of the percentage of residents with broadband subscriptions. Japan, Korea, Sweden, Canada, and Switzerland are just a few of the countries with wider access to high-speed Internet for their citizens, largely because their investments were not so spectacularly out-of-sync with consumer needs.
Worse, the broadband available to US consumers is generally slower and more expensive than in other countries. In the U.S., telephone-based DSL broadband reaches speeds averaging 1.5 to 3.0 mbps (megabytes per second) at a price averaging $30-$50 per month while cable modems in the US generally reach speeds of 3-5 mbps for $40-$50 per month. In Japan, by contrast, the cost of an average connection with the speed of 26 mbps costs roughly $22 per month, meaning the Japanese have 8 times the speed at roughly 1/2 of the cost.
And we have a terrible digital divide, where more than 62% of households with incomes over $100,000 have broadband at home, just 11% of households with incomes below $30,000 subscribe.
This broadband failure reflects a broader under-investment in upgrading our telecommunications infrastructure that was part-and-parcel of the speculative over-investments in the bubble era. The US is now investing a tiny fraction of its GDP in telecommunications compared to other countries.
My reading of US technological history is that we had tons of innovation in the pre-speculation period, but once the dotcom frenzy took off, the leadership moved from the tech folks to the money folks-- and innovation slowed tremendously. The rise of Google, really post-bust, was in many ways the return of the tech folks to power. And in its wake, a number of solid new firms have arisen that actually have smarts and technology behind them.
I am watching for signs that recent financial frenzies will begin to distort tech spending again and undermine that recent return of innovation, since I've seen tech bubbles as very much the enemy, not the friend of both innovation and smart social investments in technology.
I can't respond to the "Hurrah for Bubbles" discussion -- wouldn't know where to start. But I do have an "issue" with the idea that the dotcom bubble had any particular economic significance, whatever.
We should keep in mind that asset bubbles have no effect on the economy unless the asset is converted into money and burned up in the purchase of consumables or useless capital goods. So --- the question is how much capital was actually burned 10/1998 -- 9/2000?
I suspect the "burn" was peanuts, and the dotcom bubble was an irrelevancy. Anybody know the answer (I don't)?
Note: The fact that you bought Pets.com at the height of the market and sold it for $1 a share a year later means nothing. Grandma Millie sold you that stock and today, she's living on the French Riviera.
May 14, 2007 2:21 PM | Reply | Permalink
Levels of broadband penetration in different countries are not purely a matter of investment. For example, South Korea is at or near the top, but there is a practical reason that minimizes the cost of broadband to the home.
A great number of South Koreans live in enormous apartment complexes, in which the cost of cabling is far lower than in, for example, a typical suburb of single family homes. When comparing urban installations, also consider how much cable plant was present and how easy it is to install new facilities.
Ideographic languages tend to push demand for broadband, since they require more graphics-intensive displays.
--
Howard
*equal opportunity offense to both extremes*
"Those who cannot remember the past are condemned to repeat it" [George Santayana]
May 14, 2007 3:25 PM | Reply | Permalink
We could have fiber to the home, and quickly, but it would require throwing the phone companies and cable tv companies to garbage collectors.
We could have allowed municipalities to create the needed systems, from scratch.
As it is, the build-out of internet connectivity is being slowed, to allow AT&T, Time-Warner, Verizon and Comcast to survive, when, really, they should have been driven into extinction.
May 14, 2007 4:02 PM | Reply | Permalink
Speaking of sucking up capital and labor let's not ignore the continuing bubble of militarism. How many young engineers and scientists end up working on military systems instead of on a socially useful project?
When people look at the size of the military as a percent of GDP they miss the fact that the parts outside of the uniformed services are mostly high tech and thus the impact on our industrial policies is greater than it might appear.
Another bubble that is consuming capital and bright people is the financial services sector. All these hedge funds and investment banks don't run by themselves. So many physicists and mathematicians have ended up working on Wall St. that they even have their own nickname: quants (for quantitative analysts).
Our society is suffering from severe misallocation of talent and the only thing the pols discuss is the loss of manufacturing jobs.
--- Policies not Politics
Daily Landscape
May 14, 2007 4:13 PM | Reply | Permalink
I think this is one of the "bigger issues" that concerns me. Many people don't want k/12 teacher pay to go up because it would draw talent away from corporate america.
And, I know a lot of math and science folks who went into software engineering because the work was relatively easy and the pay was good.
So, as much as I hate the thought of it, giving away those jobs might actually help America in the long run since math and science graduates will start working for other things to do and, in the process, expand the economy in new ways.
To boldly go...
May 14, 2007 4:24 PM | Reply | Permalink
I've seen tech bubbles as very much the enemy, not the friend of both innovation and smart social investments in technology.
In my opinion, the last tech bubble was a success since nearly everyone who wanted to be online, can now be online. As Howard implied, the rural areas are more difficult but HughesNet.com is now there for them.
my grandmother, who just turned 90, has been on the internet for years and plays scrabble every sunday with my brother who is 3000 miles away.
I used to be upset that my employers didn't send me out "to be trained" but the freely available online training videos and discussion blogs make things better than the old days! i.e. I can watch the videos and read the literature in same amount of time that I allocated for travel!
I enjoy online reading newspapers from around the world and I'm thrilled that I can learn spanish by queueing up radio from spain and mexico! When I recently started to study music, I was able to study, over several years, the "state of the art" in keyboards and ultimately wound up with my S90 ES and it's been a joy to have it ever since.
And what about Google Earth? Wikipedia; Open Courseware; DemocracyNow? Kpfa.org; etc...
The bad things, like greed, and our inability to share, etc... are still around!
I'm not sure what else you want?
To boldly go...
May 14, 2007 5:14 PM | Reply | Permalink
Re: We could have allowed municipalities to create the needed systems, from scratch.
which would mean that rich communities would be very well supplied while poor communities (and rural areas) would have crap, or nothing at all.
May 14, 2007 6:58 PM | Reply | Permalink
Re: So, as much as I hate the thought of it, giving away those jobs might actually help America in the long run since math and science graduates will start working for other things to do and, in the process, expand the economy in new ways.
What "other things"? Slinging fries at McDonalds? There's only so many slots available for mathematicians and physicists those fields and why anyone would resent people with those degrees making money in other areas rather than languishing in some severe state of underemployment is beyond me.
May 14, 2007 7:02 PM | Reply | Permalink
the problem is that much of the work is "low margin" and "even more so" as work is increasingly globalized.
if americans are indeed smart-- and we have to believe that's the case, then we have to trim the fat and dedicate ourselves to "higher margin" work. we have to because, if we don't, then our country doesn't get the IP, etc...
I agree with Warren Buffet, et. al, who seemed to imply that ethanol was a disaster. Kerry and others, in 2004, talked about an alternative energy "race to the moon," and we need to do that! I don't think we have a choice.
There are tons of other things we can do too!
If you've seen the movie, "Who killed the electric car," you know that mechanic jobs and part manufacturers, like Delphi, are dinosaurs and, as far as I can tell, if we transition over to fuel cell cars, the interal combustion economy is gone with an unknowable number of associated jobs!
So, if you believe that fuel cells are our future, then you gotta position yourself for that HUGE economic shift.
As the governor of Minnesota once said: "we have to be prepared for 5 year implementation cycles, not 20 year implementation cycles." i.e., politicians can no longer act within the comfort of generational politics.
In the past, labor and wealth were highly coupled but, in my mind-- if the world really wants to achieve 5 year implementation cycles (sub generation), then wealth and labor needs to be decoupled and as you know from my posts, I'm overwealmed by the ability of the internet to support "massive, parallel collaboration."
essentially, the internet gives us the capability of creating a massive parallel computer that uses human brains as the processing element and the more efficiently that humans adapt to this paradigm, the more likely it is, IMO, that those faster implementation cycles will occur.
I have to believe that our qwest for democracy and human rights, which our leaders talk about, constantly, is centered on the ability to do a massive, worldwide collaboration that is a blesing to the human species and our entire planet!
yes, this is mystical, but let's dream big! and I'm too drunk on "internet koolaid" to believe otherwise and I want to think that the dotcom bubble was like the big bang-- the time when a new world was created and the bubble was simply the price of the marketing campaign which introduced it!
To boldly go...
May 14, 2007 8:19 PM | Reply | Permalink
I am incredibly tired of hearing "different geography" as an excuse for why America doesn't have decent broadband (or a decent health care system, for that matter).
Americans can't get good broadband in dense urban areas, either. It's the regulatory environment and lack of competition that's responsible.
What about the fact that America has twice the GDP per capita of South Korea? Surely the rich consumer market should more than compensate for the perceived advantages of Asian geography.
And I have never heard anyone ever argue that ideographs drive broadband demand. You do realize that modern Korean (Hangul) is not an ideographic language?
The difference between English and Chinese on the web is whether you have one or two byte text. And text hardly uses any bandwidth on the modern web; graphics and code do.
May 14, 2007 10:22 PM | Reply | Permalink
First chance you get do explain to us dummies why converting used pizza boxes, orange peelings and other trash into ethanol is a bum idea.
Are you certain Warren Buffett is plumb against the idea?
BTW brewery waste is being converted to ethanol commercially now. Is that also a bum idea you think?
Cheers.
Best, Terry
May 14, 2007 11:28 PM | Reply | Permalink
Re: Americans can't get good broadband in dense urban areas, either.
Huh? My broadband is entirely adequete to my needs, and I have no complaint about it from the technical POV. I do of course complain about the cost, but that is a consequence of monopoly provison of services.
Re: You do realize that modern Korean (Hangul) is not an ideographic language?
I could be wrong, but I believe that Hangul is a syllabary (one symbol per sylllable, of which Korean has a fairly limited number, unlike our more phonologically complex English). Hangul however is also written both vertically (each word) and linearly (the words in a sentence), so that is a bigger challenge than simply writing linear text.
May 15, 2007 5:07 AM | Reply | Permalink
Since the carbon footprint of converting waste to ethanol is larger than just burning gasoline, not to mention more expensive, I'm gonna go with Buffett on this one. But if we could get our acts together and get a Black Mesa Energy Project going, instead of this pathetic Military-Industrial rickshaw, maybe soon the equation will change and I will be wrong. (fingers crossed)
May 15, 2007 5:14 AM | Reply | Permalink
I suspect that Warren Buffett is being misquoted but nevertheless I say cow manure to you.
One of the ways ethanol is produced is with methane derived mainly from cow manure. Otherwise, if the anti-environmentalists of the Sierra Club have their way, the methane is released into the atmosphere as a very potent greenhouse gas.
Do tell us more about this carbon footprint.
The cost of producing methane from various kinds of waste varies but some is quite competitive now as mentioned.
Best, Terry
May 15, 2007 6:04 AM | Reply | Permalink
I'm not sure this is necessarily the case:
The New Standard News Reported, back in 2004
If Verizon is agin it, I tend to be for it. :-)
There are lots of stories about local efforts at Broadband Wireless Magazine.
aMike
May 15, 2007 7:10 AM | Reply | Permalink
"Charles Munger pointed out that it takes so much fossil fuel to make Ethanol that it currently didn't make too much sense economically."
2006 source
"Munger talked about sacrificing ethanol with higher food prices was absolutely ridiculous."
2007 source
as I looked through the comments, one of them was Buffet saying: "I'd recommend to Bill Gates that he sell his Pacific Ethanol" shares.
BTW brewery waste is being converted to ethanol commercially now. Is that also a bum idea you think?
it's a "cute science trick" and fairly funny to think that those stopped for DUI are supporting ethanol production-- I don't drink very much, so I hurt the "commercial viability."
while I haven't studied the economics of brewed ethanol, every other ethanol producer does it because of the subsidies and w/o them, ethanol wouldn't be commercially viable.
I don't support ethanol subsidies because, when gas taxes are cut, then communities shift to bonds to pay for their roads and that means "additional cost" because of the interest.
I won't buy an ethanol car because ethanol only has about 70% of the energy of gas so I know that the transport and storage is about 42% less efficient that gasoline and I'd prefer to follow those in europe and use a car with a smaller engine or with a diesel engine since the economic and environmental bottom lines are better.
over the next few weeks, I plan to start taking the bus to work but that means a 7 mile bike ride!
while I wanted to save money by taking the bus, it will probably cost me the same as driving and take twice as long but it's the right thing to do and doesn't require a miracle from science.
To boldly go...
May 15, 2007 8:04 AM | Reply | Permalink
Converting any feed grain to ethanol is an abomination in MO.
That is far different from converting used pizza boxes, woody waste and even stale butterscotch candy to ethanol.
Are you certain Warren Buffett - or any sane person - would be against that?
Best, Terry
May 15, 2007 8:19 AM | Reply | Permalink
Perhaps I live too deep in the weeds of the tech industry, but I think there are arguments on both sides, which means the truth lives inbetween. I reject the argument that the dot com bubble drew capital away from residential use as far too general and simplistic an analysis. Comparisons to Japan and Korea are odious as they ignore key facts about cabling: geography and legacy infrastructure. Both examples are countries of limited size and Korea (like Ireland) enjoyed the advantage of not having a significant legacy teleco infrastructure. Finally, the two examples enjoyed government investment of the kind not seen in the US since the rural electrification programs of the 1930's (the same infrastructure that has since complicated fiber deployment). It's a question of both physical and logical infrastructures related to the US's advanced phase of development.
10% of retail clothing sales are now conducted online, Blockbuster is in a fierce fight for its life against online dvd rental, we no longer have to spend half a day at the DMV, and productivity gains in industry have never been so pronounced, nor so directly linked to one source. Not perfect, I'll grant you, but significant.
The dot com bubble did divert capital away from legacy industries, most signifcantly in manufacturing, but it also helped the services sector. We can argue if America's manufacturing is/was doomed, or is salvagable, but the key fact is that the services sector looms large whether or not new investment makes its way to textiles or steel, or if we retrench from our current trade platform.
Finally, its worth noting that significant wealth redistribution and some growth occurred during the boom and bust of the dot coms. Some were just the typical speculators who create nothing other than super mansions (which are actually pretty lucrative to craftsmen and heavy equipment manufacturers), but others are the creative types who have benefited our economy and society.
I have a very unpopular belief in these parts in the form of "creative destruction." Bubbles typify this economic theorum. There are always many examples of the evils of bubbles, but on the macro, looking at 30-year chunks of economic time, they serve a useful purpose. What sucks is when mom and dad get hurt (as mine did). Best to leave speculation to those with inside information--i.e. the criminals.
May 15, 2007 8:38 AM | Reply | Permalink
You really didn't address my point which at all. I point to the school systems as exhibit A in my argument that making municipalities responsible for the provision of this sort of service would lead to gross inequities. At least with large corporations in charge poorer communities can piggy-back onto their richer neighbors. Granted there is a real problem with monopolies in this area (as with cable TV too) but the solution is not yet another monopoly (one run by the government) but either the introduction of real competition or else serious public regulation.
May 15, 2007 9:09 AM | Reply | Permalink
Re: If you've seen the movie, "Who killed the electric car," you know that mechanic jobs and part manufacturers, like Delphi, are dinosaurs and, as far as I can tell, if we transition over to fuel cell cars, the interal combustion economy is gone with an unknowable number of associated jobs!
However the new technologies you suggest would also create a unknownable number of jobs. It's not as if the transition from horse and buggy to automobile produced mass unemployment a century ao. Quite the opposite, actually.
May 15, 2007 9:11 AM | Reply | Permalink
You've just admitted that you're unsatisfied with your broadband service's cost, so I don't know what you're disagreeing with here. Maybe even dial-up is adequate for your limited needs, but I can think of a lot of things that would be better (ever used youtube? downloaded music? tried to download a movie?) if the web were 10x faster than the slow, crappy, expensive broadband service I get in the densest, most technology-savvy city in America.
Considering what broadband has been proven to be capable of in countries with well-regulated competition, the situation is appalling. The FCC (especially under Michael Powell) gave away the store to the telcos, and they're getting fat collecting rents.
Re: Hangul -- of course it's syllabic, although hcberkowitz seems to think not. It's irrelevant whether it's challenging for a computer to display Korean or Chinese or Japanese -- it's not, and whatever web browser you're using has already been doing it for a decade or more.
The issue is how much bandwidth languages use (essentially how much of your internet "tube" they take up). Syllabic, and even ideographic, languages use virtually no extra bandwidth, despite whatever excuses hcberkowitz was trying to make for the telcos.
May 15, 2007 9:41 AM | Reply | Permalink
You are making quite a few generalizations, perhaps based on limited experience. Where did I make excuses for telcos? Did I, indeed, suggest that telcos should be the principal broadband providers?
Technology is constantly offering alternatives to telcos, but, for telcos, there are real restrictions on CAPEX for those local telcos that are somewhat deregulated. In most areas, cable is more flexible as a broadband provider, but even there, alternatives are rapidly evolving, especially in niche markets. Several IEEE 802.11 wireless broadband approaches exist, with optimizations possible if they don't need to support mobility. Where satellite had been the only real alternative for geographically isolated areas, IEEE 802.16 wireless is a possibility as long as you can be in line of sight of an antenna tense of miles away, and broadband over electric power lines, if they don't run their own generation, is coming. Broadband over power line may be the killer approach in urban areas, since far more homes are wired for electricity than conventional telephone or cable.
The ideographic languages were, indeed, a driver, especially in Japan. In the mid-to-late eighties, Japan was pushing for what was fast at the time, ISDN. 16-bit characters are more of a concern at 64 or 128 Kbps, which was what was available at the time. Further, interactive applications with ideographic languages put even more demand on those slow-by-modern-standards links than on more modern and higher speed links.
My point about Japan, and to a lesser extent Korea, is that ISDN created an expectation for greater speeds than had been possible on analog modems, and the consumer demand was there when faster services started being commercialized in the nineties.
Since this is a discussion about communications, theodicey, how about trying some? Perhaps you might occasionally ask me why I am saying something, rather than ass-u-me, and add things (e.g., telco as principal broadband provider) that I never said. I have just a few verifiable credentials in knowing something about Internet and integrated service provision, here and there. As far as defending telcos, I have long regarded Verizon as the employer of last resort for colorblind cable splicers.
--
Howard
*equal opportunity offense to both extremes*
"Those who cannot remember the past are condemned to repeat it" [George Santayana]
May 15, 2007 10:06 AM | Reply | Permalink
Not mass unemployment, but it ruined one of my great-uncles, who was a mule importer. He freighted mules from where they were raised to where they were needed for work on farms. He couldn't keep up with the changeover to tractors, and his wife ended up having to take in boarders.
So that brings us back to issues like retraining. It isn't actually easy to change careers
May 15, 2007 10:53 AM | Reply | Permalink
(redundant post)
May 15, 2007 10:53 AM | Reply | Permalink
Ethanol, as it stands now, is mostly "corn ethanol."
In the future, when cellulose ethanol is out there, maybe he'll invest.
Based on my reading of his comments, Buffet didn't buy into the current corn ethanol plants because they didn't invent anything valulable, they only carry out a process. He has invested in trains and they might bring the coal to the coal based ethanol plants and, susequently, cart off the ethanol to market.
From what I've read in the past, Honda and BP are investing a lot in cellulose ethanol (wood to fuel) so, perhaps, those are the stocks you want.
Apparently, cellulose ethanol will be economical....
To boldly go...
May 15, 2007 12:08 PM | Reply | Permalink
However the new technologies you suggest would also create a unknownable number of jobs.
right. I just see fewer jobs in this particular case since the non-combustion engine cars require a lot less labor and material.
where do you see the growth?
To boldly go...
May 15, 2007 12:12 PM | Reply | Permalink
It isn't actually easy to change careers
that's why I save my money and live my grandmother did during the depression.
To boldly go...
May 15, 2007 12:15 PM | Reply | Permalink
I suspect that Warren Buffett is being misquoted but nevertheless I say cow manure to you.
your tounge and cheek is pretty funny...
The cost of producing methane from various kinds of waste varies
I assume that Buffet's comments were based on corn ethanol. other processes, like cellulose ethanol, might work out better and get us to "energy independence."
more importantly, I think, methane can be used in fuel cells.
To boldly go...
May 15, 2007 12:21 PM | Reply | Permalink
we no longer have to spend half a day at the DMV
I go to the DMV and only spend 5 minutes there since, thankfully, a lot of folks pay by check or website.
The dot com bubble did divert capital away from legacy industries, most signifcantly in manufacturing, but it also helped the services sector.
what are you thinking when you say "diverted capital away?"
To boldly go...
May 15, 2007 1:36 PM | Reply | Permalink
I think a distinction needs to be made between entrepreneurship and capitalism. The former is what you get when it is easy to start up a business. At one time there were hundreds of automobile companies. Each probably contributed some small innovation, but the "waste" of effort was great. The winners weren't necessarily the best, but were the best at manufacturing and marketing.
Once the field narrowed down to the handful that existed before WWII the industry took on all the characteristics of a shared monopoly. Even smaller players like Kaiser and Studebaker were squeezed out. We have seen the same thing more recently with computer operating systems, CPU chips and telecom companies.
We are (fairly) good at encouraging innovation, but fairly bad at controlling the oligopolies which emerge as industries mature. A return to a real anti-trust policy and limits on patent and IP abuse would open up the floodgates of innovation again.
If we fail to do this other countries will use the same techniques to limit competition and force us to buy their innovations under monopolistic conditions. I think the phrase is "hoisted by one's own petard".
--- Policies not Politics
Daily Landscape
May 15, 2007 1:39 PM | Reply | Permalink
Re: I just see fewer jobs in this particular case since the non-combustion engine cars require a lot less labor and material.
Even if that's true (and I question the assertion, since most technical advances throughout history have resulted in greater complexity not less in our machines) in and of itself there's no reason that translates into fewer jobs.
May 15, 2007 1:43 PM | Reply | Permalink
Re: Maybe even dial-up is adequate for your limited needs,
My needs are not exactly limited. They include working from home, blogging (obviously!), various other web browsing, email of course, some online shopping (mostly travel related), and (my partner not me) World of Warcraft and similar online gaming. I just don't have a complaint with the technical performance of our broadband and, as an aside, I really grow weary of the ceaseless chorus from some folks running down EVERYTHING in the US. Would we be hearing these complaints if Al Gore were in the White House as he should have been? I mean, I agree, George Bush is a jerk, but does George Bush being a jerk mean that American broadband sucks? Now, as to my complaint about pricing (and another one I did not utter, poor customer service), yes, I don't deny I am not satisfied in that area, and that is due to, as I wrote, to the monopoly structure of the system, and the lack of effective public regulation. But it is not due to any technical or scientific incapacity on the part of our nation.
May 15, 2007 1:44 PM | Reply | Permalink
Two observations. This is far less a problem in states which mandate some formula for equalizing spending per capita on student populations. The problem is complicated by the fact that at the state level, as at the national level, political power is unequally distributed, and wealthier communities have more clout that poor ones.
Second, my point was, rather than making municipalities responsible for the provision of this service, companies are actively seeking to forbid them from providing this kind of service--even wealthy communities like San Francisco. I wouldn't argue for making a community do anything in this instance, but what's the logic in the forbidding?
aMike
May 15, 2007 2:26 PM | Reply | Permalink
On the telecommunications industry, I'm sure Howard has already factored this into account, but where I live Verizon is a dsl player but TimeWarner has the cable monopoly, with subcontracting to two ISPs, Earthlink and Road Runner. The bill comes from TimeWarner regardless, and it alone can respond to service and repair issues.
John
http://www.haberarts.com/
May 16, 2007 11:19 AM | Reply | Permalink
Interesting. I'd have to check the industry statistics, but having multiple ISPs approved by the cable carrier may be unusual.
It's quite common to get an offering from an ISP that includes DSL, but the ISP often subcontracts to a DSL aggregator (e.g., Covad) that, in turn, subcontracts to a physical DSL operator (e.g., Verizon). When I had this in Virginia, the fingerpointing was nightmarish. It didn't help that I often could give an exact diagnosis of the problem to Verizon. I had to talk to my ISP (changed several times), who talked to Covad, who talked to Verizon.
--
Howard
*equal opportunity offense to both extremes*
"Those who cannot remember the past are condemned to repeat it" [George Santayana]
May 16, 2007 11:33 AM | Reply | Permalink
"Irrational exhuberance" promised big returns for those either speculating or looking to get into the new dot com economy. The attraction of large returns enticed investors to put their money into the sector, to the exclusion (or reduction, if you will) of other sectors. This was a redirection or diversion of capital from the legacy economy. Thus the dot com bubble "diverted capital away" from manufacturing.
Note about your quick trip to the DMV. I suspect the state's investment into their technology in order to make sevices available on the web carries over to more efficient systems at the local DMV office. So your visit is aided by the reduction in real visits by customers using webbased systems, and expeditedy better systems at the desk. Ain't technology grand?
Back to capital. Available capital follows market trends on a good day, and market fads on most days. Capital is finite and adjusted only by general economic growth, or shrinkage. So if available capital is a pie and one sector is experiencing a bubble, it pulls available capital away from the remaining market sectors. I think manufacturing was shrinking before the bubble, but the rate of shrinkage only accelerates when available capital chases a bubble.
May 16, 2007 1:29 PM | Reply | Permalink
I was involved in some of Virginia's early attempts to bring automation to DMV. My counterpart in the DMV said that they had gotten the budget for somewhat subtle and bipartisan political reasons. He said that it had been realized that DMV was the part of the state government that more voters contacted than any other. If DMV looked good, the state would look good, and if it didn't, the utility regulators weren't going to retrieve the situation.
--
Howard
*equal opportunity offense to both extremes*
"Those who cannot remember the past are condemned to repeat it" [George Santayana]
May 16, 2007 2:36 PM | Reply | Permalink
"Bubbles are a suck for capital, for labor and most of all for creative skills that are pulled away from more useful endeavors. When the best and brightest minds are focused on useless dreck (can we all say Pets.com), they aren't focused on real innovation."
I think you are forgetting Nathan that the employees of the dot coms didn't likely retire after the bubble - they went on to fill other jobs armed with the work experience they learned while getting hired and working for the dot com.
Also, the capital spent on the bursted companies wasn't wasted, it trickled down to employees who were hired, vendors who were paid to sell more wares, which further trickled down to employees, which was all spent on stuff that otherwise would not have been spent on, which allowed those folks to invest their increased money, probably more wisely.
I didn't have any money to invest, but my own little dot com has proven to provide quite a return on investment. I've had my tiny dot com, which only employs myself (although my wife does most of the bookkeeping - i could do it all easily though if she had a job,) for almost 11 years now. I started it summer of 1996, investing about $200 I guess, if you include the software to create the web site. Over it's lifetime I expect it to return a million dollars, this would be over 30 years expected lifespan and guessing on the future revenues. So far it's all gone to living expenses - I have no savings account for example - but it has paid the bills for a family of four, as I got married a few years after starting it, and it has allowed for the purchase of a home. It has deflated slowly but surely over time, due to increased competition and lower pricing. But it hasn't burst. Of course you have to add in the opportunity cost of my having a job instead of the business and so really I've invested more than $200, only in sweat equity. Although most of the time now due to it's lack of growth I only put in one or two hours a day. So I am also back in college getting a teaching credential - the dot com is allowing me to change careers as well. If my wife had good employment I may not have needed to prepare for a new career. Once I have the 2nd income (or especially third if my wife ever gets a job,) I should be able to finally have a savings account for once. I'm 45 and I still joke that I had more money in the bank when I was a paper boy than I do as an adult.
Another benefit of my own little dot com has been my working at home and being able to give attention to my two children while they were being raised. They will be in grades 1 and 2 this next school year, so I have been able to provide the attention up until the time now that they don't need as much - they will be both away at school for 7 hours now including the bus rides to and from. My wife has been home as well, so we have provided both father and mother working from home and being around our children 24x7x365 for their entire life so far. I would hope this will mean that they will have a very solid psychology.
At any rate such small bubbles are not what you are referring to in the great big public offering bubble companies that burst. But I thought it would make an interesting side note.
May 20, 2007 11:57 AM | Reply | Permalink