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February 24, 2000

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Subject:  The Biggest Hype of All?
Author:  GFPE

The biggest hype of all? The New Economy.

The economy is different. Technology and future-oriented companies are reaping huge rewards for their innovations and boldness in the consumer market and capital markets. Societies across the globe are embracing progressive capitalism. Technology increases productivity, allowing wages to increase without concomitant increases in prices (inflation). Technology makes old chores less onerous and creates new possibilities and new media, like the Internet. Biotechnology promises to reduce human suffering and disease.

But all of these have risk associated with them. Technology results in more "efficient" warfare; in some cases this is more destructive (atomic weapons and biological warfare); in other cases, this allows for more surgically-precise warfare (smart bombs, etc.), that may lower the barrier to entering into war and so just make it all that much easier to start a war. The knowledge gained from all the progress in biology over the last few decades promises to greatly improve the quality of life for everyone on the planet, but also raises many issues that we'll have to come to terms with and decide what we want and where we want to draw the line.

But in balance I see these changes as good. In both cases, both for talking up the wonders of technology and progresses and in fear-mongering the dangers, there's hype and exagerration. We've been hobbling along for millions of years, and technology is not going to change our basic nature. Life will get easier and more perilous. Diseases will be more treatable and even completely curable but the knowledge that goes into that could potentially find other outlets. But will any of this throw our existence into a constant state of bliss or a constant state of hell? No. Our kids and grandkids will ultimately have lives not that different from ours, just with more "stuff" and more conveniences and material improvements.

The New Economy is a reality in the sense that wealth generation and consumer tastes are much more technology-dependent than they were in the past. And the cycles of new technology development, obselescence and displacement are faster than ever before.

The New Economy is hype in that none of the basic realities of consumer and capital markets are changed, nor are the basic realities of human existence. Businesses will come and go. Profits in the end will always be important. Life will always be a struggle and a big piece of crap with some nice moments in between, or a bunch of nice moments with a little crap that you have deal with in between, depending on your brain chemistry and your point of view.

One side-effect of New Economy thinking and a general sense of optimism in our capitalist society is super consumerism. I believe that only capitalism, of all the economic systems ever tried, can consistently produce progress, positive and negative, and, if tempered with some measure of justice, create the best lives for the most number of people. However, I find some of the excesses of consumerism to be pernicious. Look at the Web, as an example. It started as an experiment, then became a great global information network with minimal consumerism. But in the last four or five years, it has become a breeding ground of scams and questionable business models. I'm not saying that banner ads and other forms of propoganda are terrible. In the end, something has to pay for the services and content on the Web.

But more and more one sees hype and ads taking over space that formerly was content. At the big sites, content is in danger of being squeezed out in favor of well-placed tie-ins and ads. AOL Time Warner could become a major force in dumbing down the Web, in blurring the line between information and cross-promotion and advertising (just as the ten o'clock news has become in part an advertising vehicle for "stories" about new programs on the same station or network).

You'll continue to see this tension between people who are just sharing knowledge, reporting events, etc. and forces that want to capitalize on every last drop of content on the Web. This tension is creative, as long as each side keeps the other in balance. After all, money needs to be made. But if there's an imbalance and one MS- or AOL Time Warner-like entity gains control, then the Web could become a pure advertising vehicle with the content being just a sugary attractant, like much, though not all, of television. Don't forget one thing: the real hype about the Web to change the way we do everything only started when a lot of big powerful people started seeing major $$$ signs in the new medium.

As soon as I say this, I realize that warning about this kind of over-commercialization against the background of a hyper consumerist culture is in and of itself another form of hype. In the end, the different motivations of all the different people in the world will work themselves out on the Web. It wouldn't be too easy to turn the Web into another form of network television, but it's fine if such things exist as a subset of the Web. So I am not too worried.

I am more worried about consumerism changing the way people think to the extent that activities without any profit motive become laughable. You see this already in our society. Do teachers, educators, artists, scientists, social workers, etc. get the kind of respect and publicity that a CEO gets? No. Is this any different from how it ever was? Not entirely, but it has gotten worse, I think. I mean, a CEO has an enormous responsibilty and can make or break a company, but society doesn't just need CEOs. But the respect and credit and reward that goes to CEOs is out of proportion compared to the relative amount that all the engineers get, or the teachers that taught them or the nurses that treated them, and so forth.

Capitalism is good, but a society with values just rooted in money is not. Buying good things that you need or that will improve your life is good, but buying stuff you can't afford and don't need on a credit card is not.

Greenspan seems to be stressing two things right now: the perils of the wealth effect and too much confidence in technology and productivity gains of the future. It's not wealth generation in and of itself that he's worried about: it's too much consumption. And it's not confidence in the power of technology to change things that he's worried about: it's speculation that is so optimistic that even the progress of technology cannot justify it. I still think the Fed should just let the markets do what they will, since in the end they regulate themselves on their own, but I understand the concerns.

I try to live below my means. The gains I have made from the stock market I reinvest. I do this because I enjoy investing more than spending above what I need and because I want to have money in the future for security and to pay for all the expensive events of a middle class life: buying a house, sending kids to college, retirement and all that boring stuff. Even if I were a jagillionaire, I'd have this same attitude. There's more of a reward in discipline than in buying all the latest gadgets and clothes and a Ferarri that will rust or get stolen in the end. Amen.

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