Arnold Kling

The legacy of the Internet Bubble

Arnold Kling, Great Questions of Economics
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What was the net effect of the Internet Bubble on the U.S. capital stock and future growth? The "glass is half full" view is represented by Paul Philip.

Technology bubbles happen when a radical technology emerges that has the potential to transform the economy, society and politics. The bubble itself is driven by exactly the same manias. The difference is, at the end of the bubble there is much left behind (technology, knowledge, social practices, infrastructure) that has economic value. Technology bubbles increase the wealth creating capacity of the economy.

The "half empty" view is represented by D. Quinn Mills. He says that without the bubble,

There would have been a better economy and you wouldn't have had the economic recession we're in now with the risk of a substantial decline behind it. So you would have simply have had better economic growth. [The Internet bubble] did not contribute to the success of the American economy during [the 1990s]. In fact, if anything, it constrained it. And when it bust, it risked it entirely

Discussion Question. Could we have had the positive results discussed by Philip without the negative results described by Mills?

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