What popped the bubble? (Book Review).

When the Internet bubble burst, it brought the decline of something else: the mountain of books heralding the arrival of a brave new world of technological innovation, books so enthusiastic that the dot-corn advent sounded on par with the discovery of fire.

Authors proclaimed revolutionary changes in the way we think, work, communicate, consume and make love. Practically none of them foresaw the bubble's burst, and the prudent voices that did were buried under an avalanche of optimism. In the wake of the debacle, the most repeated question is: What happened?

John Cassidy, an economy and finance journalist for The New Yorker magazine, offers in this book the first complete and coherent story of Internet fever and its disastrous end. Cassidy notes that the Internet era kicked off with the end of the Cold War in 1991 and ran until the terrorist attacks of Sept. 11, 2001, a stretch of time during which the world seemed to have found a path towards peace and prosperity based on the U.S. socioeconomic order. It was the end of history if history is seen as confrontation between ideologies, according to public policy professor Francis Fukuyama at George Mason University Today we know better. New age dawns. Cassidy opens his book with an account of the Internet's origins. Vannevar Bush (no relation to the U.S. president) invented a so-called protocomputer dubbed a "memex." From there, the author discusses the defense-related computer network created and directed by the U.S. federal government over 20 years, later giving rise to the popular Internet, as well as creation of the World 'Wide Web by Englishman Tim Berners-Lee and the global commercialization of the electronic network.

Cassidy sets Aug. 9, 1995 as the beginning of the Internet gold rush; that's the date a pioneering company called Netscape made its initial public offering on the stock market. At the close of trading, Netscape was valued at more than US$2 billion and the frenzy of high-tech stock-buying had begun.

The author gives several explanations for the arrival of the New Economy The end of the Cold War changed the perception of high technology; no longer associated with nuclear destruction, technology was now linked to innovation that improved standards of living. Also, the popularity of savings plans that invested in stocks, mainly through 401(k)s, gave the dot-corn companies a huge Wall-Street war chest to finance their projects.

The result was a society-wide speculative fever the author compares with tulip-mania in Holland in the 17th century, when a single flower cost dozens of times more than the average annual income. In both cases, prices reached stratospheric heights that were impossible to maintain for long. The Dutch market, like that of the United States, collapsed resoundingly--and no one seemed to see it coming.

Cassidy looks for the guilty parties and finds many: stock market analysts; journalists and authors who gladly trumpeted a new era; industralists with smoke-and-mirrors Internet projects; politicians like Al Gore and Newt Gingrich, who encouraged the frenzy with political crusades in support of the Information Highway.

Cassidy strongly criticizes Alan Greenspan, president of the U.S. Federal Reserve, for his frequent comments on the advantages of new technology and his inability to see the approaching debacle. Isn't Greenspan in charge of safeguarding the health of the national finances?

Much of the author's argument has already received ample attention in the media. The value of this book lies in how it organizes and puts into perspective a period of hope and transformation, the raw material of revolutions. As happened in numerous other revolutions, however, the Internet upheaval did not live up to most of its original expectations. An axiom lost in the torrent of optimism: Businesses, from ancient Egypt to the present, are based on selling a product for more than it costs. Projected earnings by dot-coin companies relied on forecasts of earnings on unproven factors, such as Internet traffic. Web fever ended when e-commerce did not reach its desired heights.

Nevertheless, the Internet has become a serious communication tool and a record of our civilization, precisely what Vannevar Bush sought for his memex device more than a half-century ago.

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Excerpt from:

Dot.con::

"The promise of the Internet wasn't just technological: it was also ideological. Once digital networks had liberated them from the confines of tradition and physical location, human beings would come together and trascend ancient divisions: tribal, religious, racial, and economic. After September 11, it seems ludicrous to speculate about an escape from history or geography."