Tech and the Economy

Technology and the economy have always been inextricably woven together in a constant cycle of cause and effect. Technological advances have fostered economic growth countless times, but technology itself has often been wielded poorly, leading to the devastation of the environment, the economy, and even lives on a widespread scale.

tech economy2So given this trend of positive and negative effects, what can we expect out of our tech-based economy today? Many investors seem to be throwing around their money as if infinite, unprecedented economic growth were attainable and Silicon Valley’s gravy train only goes uphill. Others look at valuations of companies like Groupon, AirBnb, Uber and Slack and see a very similarly inflated number, one whose inflation reminds them of a tech bubble crash that happened not so long ago, in the late 2000’s.

How did that crash happen, and what does it mean in terms of what the American and global economy might have to endure if another bubble crashes in a similar way? This article will examine what we learned from the dotcom bubble, and if that lesson will in any way ameliorate the affects of another crash today.

Briefly, the dotcom bubble started in the late 1990s when access to the internet began to expand at an unprecedented rate and online retailing was becoming a booming business that never before existed. A digital gold rush occurred, and investors sprung at the opportunity to invest in fledgling companies that seemed to have unbridled potential to grow in an unconquered, virtual world. Excitement and stock values grew, to the point that countless companies were valued at prices that they could never match in terms of their own revenue. This all came to head in March of 2000. On March 10, the combined values of stocks on the NASDAQ was sitting at $6.71 trillion. On March 11, the crash began. By March 30, the NASDAQ as a whole was valued at $6.02 trillion. On April 6, it was at $5.78 trillion. In other words, in less than a month, about one trillion dollars worth of stock value revealed itself as totally baseless and disappeared.

How did this happen? Apparently a bunch of companies that investors had propped up with unwise funding began to lose money at a rate between $10 million and $30 million a quarter, ultimately resulting in failed businesses and lost investments. As companies began to fold, media outlets warned investors to limit their exposure to the tech sector. By then, many fortunes and companies had been lost to the hope that the internet inspired.

tech economyNow what about today’s potential bubble? Does it exist, and if it does, how bad will it be when it bursts? Entrepreneur and Dallas Mavericks owner Mark Cuban thinks the bubble will burst and a lot of people are going to suffer financially as a result:

“So why is this bubble far worse than the tech bubble of 2000? Because the only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity. If stock in a company is worth what somebody will pay for it, what is the stock of a company worth when there is no place to sell it?”

Others claim that investors have been more cautious, and had more realistic expectations as of late. Only time will tell which tech companies fail and thrive, and which investors they take along with them.

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