Dot-Com Bubble Myth
It is quite common for Austrian Economists and others to suggest that the Federal Reserve created a Tech Bubble (Dot-Com Bubble). If by a technology bubble they mean that real wealth was not created in the 90s this is nonsense. First of all the price of gold fell from 1998 until around 2001. The price of gold is one of the best indicators of inflationary policies. Second, the Fed started raising interest rates in June of 1999 from a Fed Fund Rate of 4.5% to 4.75%. This persisted until January of 2001, when the Fed Fund Rate stood at 6.5%. This is hardly an accommodative monetary policy. Third, industrial production grew by about 42% from the end of the recession in the early 1990’s to the end of the recession in 2001. Fourth, median household income increased by 34% in the 1990’s. Fifth, the stock market had real gains even after the bust of 2000. In the 00s, industrial production actually fell from the end of the recession in 2001 to the end of the recession in 2009, median household income declined, the price of gold soared, the Fed lowered interest rates to zero, the stock market did not grow at all. To lump the 1900’s with the housing bubble of the 2000’s is wrong and misleading.
The facts just do not support the Bubble myth of the 90s. Real wealth was created in the 1990’s. The stock market had probably gotten ahead of itself, but the Fed’s attempt to engineer a soft landing just made the correction worse. This caused Congress to get involved and pass Sarbanes Oxley that destroyed the IPO market. They also made changes to the patent laws – weakening them, changed the accounting rules on stock options – requiring a phantom expense, eliminated pooling of interests accounting for mergers – making it less attractive for technology startups to merge. But for these stupid policy changes, the technology market and economy would have started growing again. In any large group of people, the only way to increase the per capita income/wealth is to increase the level of technology. US policies since 2000 have stifled technological innovation.
The so-call Dot-Com bubble is a myth. Misdiagnosis of what happened in the late 1990’s has resulted in bad policy decisions. Jack Kemp exposed this issue in Criminalizing Corporate Behavior http://www.jewishworldreview.com/cols/kemp.html.
Dot-Com Bubble Myth, Dot-Com Bust, Tech Bubble
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