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Just a couple of years ago, the Dow-Jones Average was in
quintuple digits and the people who care about such things
were full of excited chatter about how we were in a New
Economy
because we had entered the Information
Age
when almost everything would happen on-line.
Now many of those high-flying companies have disappeared, while some of the others are under investigation, if not indictment. What happened?
It is amusing to read the Republican spinmeisters as
they try to blame this on the lax moral environment of
the Clinton-Gore years which encouraged an anything-goes
culture.
One problem with that analysis is that the 90s were also
the Newt Gingrich years,
and the Republican Speaker
of the House was not exactly a moral exemplar. Another
problem is if any Republicans were clamoring for greater
regulation of the securities market then, that fact has
escaped anyone's notice.
So we probably need to look beyond politics to find an
answer, even though it may seem obvious to many people that
the words President George Bush
actually mean
something like Let's start a war with Iraq so that it
will be unpatriotic to criticize the commander-in-chief
while the economy is going down the tubes.
One currently depressed part of the market is the telecom sector, and part of its problem is that it was overbuilt -- there's a lot more fiber-optic capacity than there is traffic to fill it.
This isn't the result of any modern perfidy, though. It's the American way. Go back to antebellum America, when the Erie Canal connected the port of New York to the Midwest via the Great Lakes. Barge freight rates are cheaper than wagon freight rates, so New York City raced ahead of competing ports like Boston, Philadelphia and Baltimore.
Suddenly everybody wanted a canal, preferably constructed at public expense. There were canals proposed that would connect Chesapeake Bay to the Ohio River, canals from the Ohio River to the Great Lakes, canals across Pennsylvania despite the intervening mountains, canals criss-crossing Illinois -- some of these were even constructed.
Most of them were financial failures. Overbuilding was part of the problem, but the bigger problem was the arrival of a new transportation technology, the railroad. It could run all year, whereas canals froze over in the winter. It was faster, and it could go more places.
So as canals went bankrupt, investors poured money into railroads. And naturally, they overbuilt, although the insiders usually profited by owning the construction company.
The proceeds from the sale of railroad stock went to buying the track from the construction company, so its owners got cash. The railroad investors, attracted by a prospectus that showed corn growing near timberline or something similarly impossible, got to figure out how to make money in the face of strong competition. Colorado wasn't settled in time for the canal boom, but did Gunnison really need two railroads? Or Aspen? Could Leadville or Cripple Creek support three?
Little wonder that the corporate history of Colorado's railroads consists mostly of foreclosures, bankruptcies and receiverships. Thanks to overbuilding, there was more capacity than there was demand.
That also seems to be the case in the telecom sector today. They've got all these fiber-optic lines, and yet there's not nearly the traffic they expected because we're not spending enough time on-line.
And why should we? Sure, I surf the 'Net
for
research. But it's slow and annoying, and I'm always
getting warnings about cookies and viruses and various
other vexations that can invade when I'm on-line.
So it's not an entertainment medium if you've got a relatively slow dial-up connection, and it's a source of infection if you've got a broadband connection and you're not totally up-to-date on firewalls and other security measures.
Besides, if I want music, I've got a decent stereo. If I want video, I've got dozens of satellite channels and a DVD player. If I want to read for relaxation, I can read in the easy chair, which I can't do with a computer monitor. There's only so much time in a day, and most of us had already figured out how to spend it before the 'Net came along. In general, it doesn't provide anything that you can't get elsewhere, and elsewhere almost offers greater quality and convenience.
As for email, it was a boon at first. Now it's mostly a source of advertisements for Viagra, unless it happens to explain how I can get $250 million of Nigerian foreign-exchange credits just by depositing $10,000 in a Cayman Islands account.
At any rate, we really don't need to blame modern morality for the current economy. America has always been a place for binges, and other one will come along.
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