How the high-tech boom will bust
page 4: Depression
upside.com
What's worse, as the wave of innovation slows, existing companies will lose their fear of being overrun by new competitors. With less pressure from rivals, and facing slower productivity growth and a squeeze on profit margins, any increase in wages will immediately translate into higher prices. Inflation will jump back in every sector of the economy. Hardest hit, of course, will be the stock market. Rather than a single sharp crash, the market will sour over time. The leading-edge Internet companies will tumble even further than they did in spring 2000. Initial public offerings (IPOs) will come to a dead halt, and the downdraft will spread to the technology stocks, which
accounted for roughly 45 percent of the
gain in market value during the New Economy boom. Attempts by investors to pull their money out of the market will drive down stock prices even further. Add rising inflation and a slump in business investment, and stock prices easily could give back a substantial portion of their nearly tripling in value since 1995.
Some of the most lauded features of the New Economy will come back to haunt us. When venture capital dries up, so will the multitude of jobs being funded by it. The young college and business school graduates who joined the dotcom revolution hoping for a quick score will be back living with their parents. Stock options will become worthless pieces of paper.
The unemployment rate will soar, pounding people who never expected to be out of work. Almost 60 percent of the new jobs generated between 1995 and 2000 were managerial or professional jobs, and those will be hit hard by the tech cycle downturn. The biggest cuts will happen among the people most intimately associated with the New Economy -- the website designers, the marketers at dotcoms, the consultants and investment bankers who rode the boom and the journalists who covered them. The shortages of information technology workers -- currently 800,000, according to a report from the Information Technology Association of America -- will turn into surpluses.
For a while the pain will be covered up. Some laid-off workers will switch to jobs at more traditional companies, while others will pay their bills with their credit cards. But eventually the downturn will spread to Old Economy companies as well, and the out-of-work will reach their credit limits. The $4 trillion in debt taken on by businesses and consumers in the past five years -- the largest debt binge in U.S. history -- will lead to a wave of bankruptcies and cutbacks in consumer spending. Stores and websites will be filled with goods no one can afford to buy.
The damage is likely to spread globally as well. A slow-growth, high-inflation, tech-driven downturn in the U.S. could trigger an international financial crisis of historic proportions. For the past decade, the U.S. has been sustaining global demand, accounting for nearly 70 percent
of the growth of the major industrial economies in 1999 and absorbing much of the world's excess production of goods. |
