A nice picture from the 1990s. We remember it as a prosperous, optimistic decade that ended with the internet boom. But for many years it became the cause of our depression. We were out of the global context for a decade because of the 18-month dot-com shock.
The 90s began on a jubilant note with the fall of the Berlin Wall in November 1989. It was short lived. By the mid-1990s, the United States was in a recession. The recession technically ended in March 1919, but it was slow in pace and unemployment continued to rise until July 1929. The manufacturing sector did not revive completely. The transition to a service sector economy was long and painful.
Late 1992 to 1994 was a period of great apathy. These days cable TV used to air only news of dead American soldiers in Mogadishu, Somalia. Concerns about globalization and American competitiveness became greater as the flow of jobs to Mexico intensified. This pessimistic climate drove then-President Bush out of office, and Ross Perot's popular victory in 1992 with nearly 20% of the vote—the best victory for a third-party candidate since Theodore Roosevelt in 1912. But even the cultural fascination with bands like Nirvana, loud music and heroin, etc., did not reflect hope or confidence.
Silicon Valley was also feeling the slack. Japan was winning the semiconductor war. The Internet was still partially operational due to the lack of a user-friendly web browser, but its commercial use was restricted until late 1992. When I arrived at Stanford in 1985, economics was the most popular subject there, rather than computer science. Most people on the university campus used to call the technical field stupid and even talk about it as a boor.
Internet changed everything. The Mosaic browser was officially released in November 1993, allowing people to use the regular Internet. Mosaic turned to Netscape, which released its Navigator browser in late 1994. Within 12 months, Vigator became so popular that it increased its share of the browsing market from 20% to 80% in January 1995—Netscape was able to launch its IPO in August 1995, even though it was not yet profitable. . In just five months, the stock price of Netscape's stock had risen from $28 to $174 per share. Other technology companies were also growing rapidly. Yahoo! S went public in April 1996 with a valuation of $848 million. Amazon was worth $438 million dollars in May 97. By the spring of '98, each company's shares had more than quadrupled in price. Many market critics have questioned the earnings and revenue multiples of internet companies the most compared to non-internet companies. Now it was easy to conclude that the market had gone mad.
The conclusion made sense, but was wrongly timed. In December 296—three years before the bubble burst—Fed Chairman Alan Greenspan warned that "unnecessarily inflated asset values" could be irrational excesses. Technology investors were euphoric, but it was unclear how irrational they were being. It's easy enough to know that things weren't going too well in the rest of the world at the time.
The East Asian financial crisis occurred in July 1997. Crony capitalism and huge foreign debt had brought the Thai, Indonesian and South Korean economies to their knees. The ruble crisis flared up in August 2008, when Russia manipulated a chronic fiscal deficit, devalued its currency and went into default by defaulting on its debt. American investors were horrified about a completely ruined economy; The Dow Jones Industrial Index fell more than 10% on average days.
It was natural for people to be worried. The ruble crisis brought into existence • Long Term Capital Management, a highly leveraged user hedge fund. LTMC managed to save $4.6 billion in late 1998, and the Fed attempted to avert a systemic disaster by obtaining massive bailouts and lowering interest rates. Europe could not manage it better. The euro was launched in January 1999 at a time of great skepticism and apathy. The euro was worth $1.19 on its first day of trading, but was down to $0.83 within two years. In mid-2000, G7 central bankers had to step it up with a multibillion-dollar intervention.
So the backdrop of the short-lived dot com boom that began in September 1998 was a world in which nothing was working. The old economy could not face the challenges of globalization. Something was needed to work and that too to work on a large scale so that the future would be better for all. By indirect evidence, the new economy of the Internet was the only way forward.
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