by Higgenbotham » Tue May 07, 2024 11:50 am
Higgenbotham wrote: ↑Mon May 06, 2024 4:40 pm
During the Greenspan era, it was thought by some that blowing a generational bubble was OK because it would give the new technologies time to be commercialized and there would be some long term benefit to getting the internet companies established, then popping the bubble to revert everything back to the mean while the strongest internet companies survived and the US took the lead. In the early 2000s that thinking seemed to change and the US lost its way is my version of what happened. But before I go any further I will try to dig up some evidence for the first sentence.
Here's a recent article that's of the opinion that the Internet bubble and Greenspan's role in it is justified even today. This same logic was very common in the late 1990s.
A Reflection on The Dot Com Bubble
David Bice
Economist
Published Jun 1, 2023
Bubbles are bad, we can all agree on that. But what if, at least, some bubbles have a beneficial role to play in an economy? What if they serve as a driving force for innovation and rapid adoption of new technologies? What if halting the bubble would reduce the potential benefits rather than protect the economy? The recent Dot Com Bubble was just such a beneficial event, and the current AI tech mania may be an extension of it. The Dot Com Bubble, in addition to minting millionaires and billionaires, unleashed a creative explosion that still reverberates today. The dream of massive riches was the driving force behind the bubble, and still is, but the widespread improvement in many areas of the economy is the true benefit to the country.
This benefit also answers the question of whether this was a rational or irrational response by investors. Despite the seeming irrationality of the Dot Com market, it was clearly a rational response to the creation of very lucrative future opportunities. Investors could see the potential for massive returns in the online markets, what they could not see was how it would be made and by which companies. The array of technology offerings and the multitude of firms presented a seemingly impossible task to choose the right opportunities. Investors, however, solved the problem by choosing one of two approaches – buy them all or only buy the winners.
There has been debate between the efficient market adherents and the behavioralist wing in economics as to whether this was a rational or irrational event, and indeed even if it were a bubble at all. There are some asset price bubbles which appear to be irrational in nature, but are in fact consistent with a rational, efficient market. These bubbles tend to be created by revolutionary technologies that will sweep away the old established order and usher in a new era.
U.S. Federal Reserve Chairman Alan Greenspan has defended the Fed’s actions concerning the Nasdaq stocks, largely on the basis that to fight the bubble would have required the Fed to send the economy into a major recession. The benefits, if any, of pricking the bubble did not appear to outweigh the costs involved and thus no action was taken. An examination of the situation shows both Greenspan and the efficient marketers to be correct, although a fuller explanation is required.
https://www.linkedin.com/pulse/reflecti ... david-bice[quote=Higgenbotham post_id=86932 time=1715028007 user_id=100]
During the Greenspan era, it was thought by some that blowing a generational bubble was OK because it would give the new technologies time to be commercialized and there would be some long term benefit to getting the internet companies established, then popping the bubble to revert everything back to the mean while the strongest internet companies survived and the US took the lead. In the early 2000s that thinking seemed to change and the US lost its way is my version of what happened. But before I go any further I will try to dig up some evidence for the first sentence.
[/quote]
Here's a recent article that's of the opinion that the Internet bubble and Greenspan's role in it is justified even today. This same logic was very common in the late 1990s.
[quote]A Reflection on The Dot Com Bubble
David Bice
Economist
Published Jun 1, 2023
[/quote]
[quote]Bubbles are bad, we can all agree on that. But what if, at least, some bubbles have a beneficial role to play in an economy? What if they serve as a driving force for innovation and rapid adoption of new technologies? What if halting the bubble would reduce the potential benefits rather than protect the economy? The recent Dot Com Bubble was just such a beneficial event, and the current AI tech mania may be an extension of it. The Dot Com Bubble, in addition to minting millionaires and billionaires, unleashed a creative explosion that still reverberates today. The dream of massive riches was the driving force behind the bubble, and still is, but the widespread improvement in many areas of the economy is the true benefit to the country.
This benefit also answers the question of whether this was a rational or irrational response by investors. Despite the seeming irrationality of the Dot Com market, it was clearly a rational response to the creation of very lucrative future opportunities. Investors could see the potential for massive returns in the online markets, what they could not see was how it would be made and by which companies. The array of technology offerings and the multitude of firms presented a seemingly impossible task to choose the right opportunities. Investors, however, solved the problem by choosing one of two approaches – buy them all or only buy the winners.
There has been debate between the efficient market adherents and the behavioralist wing in economics as to whether this was a rational or irrational event, and indeed even if it were a bubble at all. There are some asset price bubbles which appear to be irrational in nature, but are in fact consistent with a rational, efficient market. These bubbles tend to be created by revolutionary technologies that will sweep away the old established order and usher in a new era.
U.S. Federal Reserve Chairman Alan Greenspan has defended the Fed’s actions concerning the Nasdaq stocks, largely on the basis that to fight the bubble would have required the Fed to send the economy into a major recession. The benefits, if any, of pricking the bubble did not appear to outweigh the costs involved and thus no action was taken. An examination of the situation shows both Greenspan and the efficient marketers to be correct, although a fuller explanation is required.[/quote]
https://www.linkedin.com/pulse/reflection-dot-com-bubble-david-bice