Technobubbles: Ancient, recent, and future
Introduction & Excerpt (Via Andrew Odlyzko)
History does not repeat, but it does rhyme, as a common saying goes. The wisdom of this claim is strongly reinforced by the history of technology. When we compare the recent Internet bubble to the British “Railway Mania” of the 1840s (the greatest technobubble ever by many measures), there are a number of striking similarities. Both collapsed because of gross overinvestment based on foreseeably foolish overestimates of demand for the new technology. But post-crash, most of the public attention in both cases was devoted to the frauds that were uncovered (and which did play important roles in inflating those bubbles). The final collapse of the Railway Mania came when it was discovered that George Hudson, the “Railway King,” the dominant figure in British railroad industry at that time, had been massaging financial reports for his lines and paying high dividends out of capital. The Internet bubble had the final nail driven into its coffin when Bernie Ebbers’ WorldCom was discovered to have committed gigantic accounting fraud and went bankrupt.
The similarities between old and recent bubbles are instructive, but so are the differences. As just example, George Hudson’s responsibility for the railroad fraud was easy to establish, as everything was done by his command. (This does not mean that he could not defend himself on the grounds of carelessness, overwork, and good intentions, nor that he did not have his defenders, of course.) Not so with the Internet bubble. Bernie Ebbers (along with some of the key players at Enron and other disasters of recent years) was able to make at least a semi-plausible case that he was not involved in any accounting details. This figure, previously lauded as a technological visionary, the prophet of the new telecommunications future, did not use email, and managed to leave very few signatures on paper documents. He now claims that he didn’t “know about technology,” and didn’t “know about finance and accounting.”