Just got back from isolation recently myself russell. Always good to touch base with 'reality' every once and a while : - ). Welcome back...............
Subject: Was I wrong about the new economy?
By Jason Pontin
The Red Herring magazine
September 1998
I remember how, 18 months ago, you stood before the attendees at our Venture Market West conference and crowed about the new economy. In a series of slides you contrasted the old economy with the new. "Old economy: competition for limited resources," a slide would read. With a magician's flourish, you'd call up the next slide: "New economy! Unlimited resources!" This went on for 18 slides: "Old economy: tuna melt on rye.... New economy! Seared ahi in a cantaloupe reduction!" (Or something like that.) Your manner was weirdly proud, as though you were personally responsible for the well-being the new economy had, by your accounts, bestowed. I found the performance mildly irritating.
Nevertheless, it had its effect. You became, in my mind, one of the great proponents of the idea. I often thought of you in the months after Venture Market West as the new economy became the preferred explanation among journalists for Wall Street's fantastically inflated stock prices, and for the unprecedented combination of America's high profits, low unemployment, and low inflation. Magazines as different as Wired and Business Week said that we had entered a new economic era: they explained that the economy could grow much faster than it used to because of networked technologies; that we were no longer subject to the tyranny of growth and recession because globalization had eliminated inflation; and, therefore, that the expectation of earnings growth implicit in stock valuations was rational. How flattering for John, I thought--people believe that the companies he helped fund have changed everything!
Why did economic arguments for the "new paradigm" make me so peevish? In part (forgive me) because they were so stupid. There was absolutely no statistical evidence that new technologies had increased productivity. New economists like yourself airily replied that official figures were too coarsely industrial to measure growth in new industries like software. You were probably right, but you had missed the point. The economy still could grow no faster than it was already growing. In any case, there was a better, and more conventional, explanation for low inflation and high profits: for various reasons (the failure of organized labor, for instance), wages were low despite low unemployment. We were enjoying a boom.
When I wrote my column for last year's Digital Universe issue, I let it all hang out (see "There Is No New Economy"). In overheated prose, I slammed the new economy as a justification for the circumstances that were making investors rich; as self-flattery by the "business class"; and as ideology.
A year later, I'm wondering if I was wrong, after all.
Here goes. Hang on tight. In retrospect, I think that I was unbalanced by the new economists' triumphalist style and that I worried too much about their economic arguments. Those arguments already seem like historical curiosities: now that corporate profits are growing more slowly and the Asian economic crisis has reminded investors of the fragility of markets, people's optimism has been tempered. No one suggests anymore that the business cycle has been repealed or that stocks are rationally priced. What is left of the new economy, perhaps, is the part that always mattered: the popular idea that networked technologies change the way business works. The Internet--universal, efficient, immediate, and virtual--is something else: we have never seen anything like it, and we are just beginning to learn what to do with it. A company's material assets and geography count for less than ever before; its ideas, people, speed, and ability to cater to its customers' specific wishes matter much more. Unlike other digital technologies, the Net does not just improve a company's business; increasingly, it will be the way a company does business. (In fairness to myself, I did say this last year, but it was submerged beneath the general biliousness.)
The companies listed in the Herring 100 (many of which you funded) have changed everything. Was I wrong about the new economy? As an economic theory, No. (And my publisher agrees with me--see "A Reality Check for the New Economists.") But as the phrase is commonly used, there is a new economy. I was wrong, John. Sorry for doubting you.
Table of Contents
<Picture>SHARE THIS PAGE Email this page to a friend.
Get a printer-friendly version.
TODAY'S NEWS
Are Amazon's bonds really junk?
Head count: Excite, Netscape, nCipher
Ciena, Tellabs merger vote delayed
Index Analysis: IPO 100 subject to politics
Re-covering Net stocks at Deutsche Bank Securities
Barnes & Noble keeps it separated
Earnings Update: Dell pops, Lycos tops
EBay reveals IPO price
FamilyEducation turns to e-commerce
Earnings Update: Dell does it again
Red Herring IPO Update: Terayon trades low in a spooked market
Entrust's IPO soars, dips
RED HERRING DIRECT
Enter your email below and receive regular updates from The Red Herring Online. It's FREE!
SAVE 29% AND GET $6 IN CYBERGOLD!
<Picture>Subscribe to The Red Herring
Enter your full name below and provide the subsequent required information to subscribe to The Red Herring and save 29 percent off the basic rate.
1998 WORLD TOUR Don't miss out! Check out the full line of 1998 Red Herring Events.
INSIDE SOURCES Important information for industry insiders that you won't want to miss is available in The Information Market. This month, we're featuring Alliance InfoGraphics from Trivergence along with other valuable resources.
c Herring Communications
herring.com |
