October 22, 2000, NYT
RECKONINGS
Unsound Bytes?
By PAUL KRUGMAN
One consequence of the changed nature of investment is a strong tendency for markets to develop into temporary monopolies. Why monopolies? Because when the required size of investment doesn't depend on how much you sell, a bigger market share is definitely better. Why temporary? Because sooner or later, and usually sooner, new technology makes your old investment worthless.
The inevitability of monopolies in a knowledge economy — indeed, the hope of achieving such monopolies becomes the main driver of investment — creates new puzzles for antitrust policy. The Microsoft case poses real dilemmas, and it is surely only the first of many.
Meanwhile, the intangibility of a company's most important assets makes it extremely hard to figure out what that company is really worth. That may partly explain the nauseating volatility of stock prices, though it's still hard to believe that enough real news arrives on any given day to justify these 7 percent or 8 percent swings in the Nasdaq.
Michael Mandel, the economics editor at Business Week, argues in his new book "The Coming Internet Depression" that this financial instability is more than speculative froth. He warns of a sort of New Age- economic tailspin in which declining confidence crimps technology investments, which depresses productivity growth, which makes such investments even less profitable, and so on. In principle, he could be right; something like that scenario has been batted around for years by academic economists. (The possibility arises naturally in "endogenous growth theory." Aren't you sorry you asked?)
If Mr. Mandel is right in practice — which I doubt, but who knows? — the next president could face novel economic challenges that defy conventional solutions.
nytimes.com
- Fred |
