Forbes.com: Massachusetts Finds CSFB ‘Smoking Gun’. I’ve been talking with some friends about the runup in wealth during the boom years, and I keep asking the question: was there any real wealth created, or was it all just staged market perception? (Yes, I know that one can lead to the other, but there must be some way to allocate between the two. Max?? Brad??)
Date: 10/09/2002 00:00:00 AM
On your efeects of the internet: The internet helps customers find the perfect price, taking into account substitution effects. By it’s nature it will help the small retailer more than the big retailer. Since (in theory), all stores are equal on the internet (i.e. if I type ‘plaid golf pants’ in Google all stores with said item will show up), the stores with the rare or obscure are at an advantage. This is because, unlike a brick-and-mortar store, the Internet will not tell you, “Sorry we don’t carry it or know anyone who does.”This is especially beneficial for small specialty stores because of reduced marketing and advertising costs, in addition to increased volume. However, this will also be balanced by lower prices, which is probably why the shift/increase of business online has not had the gains that one would expect. Since I don’t know the exact situation it’s hard for me to remark particularly accurately in the case of your friend.Also, I’m sure the added internet costs didn’t make the increased internet sales as benficial as they were, but you said he had to go online to stay in business, which means that going online DID help out your friend. I can almost guarantee that the internet helped out your friend more than it helped Borders, for example.Your last paragraph merely demonstrates the economic concept that more information for the customer will help the customer get better prices and more of what s/he wants.Mo
Date: 10/09/2002 00:00:00 AM
Don’t worry ’bout it A.L., it happens to the best of us. Besides, those binges and purges are overshadowed by the more recent market crashes. When the auto and RR ‘waves’ are probably more accurate analogies.Like Sir Winston Churchill said, “The farther backward you can look, the farther forward you are likely to see.”MoP.S. It’s Mostafa not Mostapha (though I wish I was cool enough to have a ‘ph’ in my name.
Date: 10/09/2002 00:00:00 AM
Mostafa,I can’t really be true that “more people were buying than selling at the top”. After all, for every buyer there has to be a seller. However, I agree with you about some of the progress made. One has to be careful not to equate the stockmarket with the entire economy. Just because the stock price bubble burst doesn’t mean that what was created in the real world was valueless.
Date: 10/09/2002 00:00:00 AM
Mostapha:You’re absolutely right, and I know better. This IT ‘wave’ is no different than the railroad ‘wave’ or the automobile ‘wave’; in each case the early years were littered with dead companies and fleeced investors.Sheesh.A.L.
Date: 10/09/2002 00:00:00 AM
Effects of the Internet: A friend of mine who runs a used bookstore says that 80% of his business is now internet. He had to go that way to stay in business. He got no advantage from it — he had to hire more skilled people and invest in hardware, software, and a shipping operation.From the consumers’ point of view there is an advantage. When I started buying on the internet I was able to buy about 50 out-of-print books I’d been looking for for 10 years or more, only paying premium prices for 4 of them. So there’s been an enormous gain, but not to investors.
Date: 10/08/2002 00:00:00 AM
I work in the securities industry (though I started right when the slide did) and my feeling is that all the wealth that was created earlier has pretty much been wiped out by the falling market. This is simply because moer people were buying than selling at the top and now the opposite is happening.That said, I think there were some very real gains due to the psychotic over-investment in technology. IMO, had the the internet industry evolved at a more sane (read: profit-driven) pace, it would probably take us another 5-10 year for it to reach it’s current state of cultural ubiquity. Case in point, most retail webfronts for stores are not at all profitable. They are essentially the digital versions of marble and gold-encrusted bank branches, mere status symbols. The cost of the web front is canceled out by the loss of prestige and advertisisng in addition to the risk of losing a customer to an alternative found on the net.Had there not been the rapid, idiotic over-investment in internet technologies, we might still be putzing along with something barely more robust than the old Prodigy or Compuserve. In short, money-wise we’re no better off really (but we sure have a lot of infrastructure), overall the productivity gains make up for the wild ride.