New Metropoles

Doyle Saylor djsaylor at SPAMprimenet.com
Sun Nov 7 08:18:24 MST 1999



Greetings Comrades,
    Jose responded to my remarks on Tuesday Nov. 2, 1999, but I missed his
posting partly because I work full time at a high stress job, and just saw
it last night.  My apologizes Jose!

    Well I will take your correction of my view of you seriously.

Jose,
I'm not an adherent of the "new paradigm" school insofar as I understand
it. I do not believe "digitalization" means that the economy has permanently
"jumped" to a higher level. What I believe is that the *introduction* of
this labor saving technology has *temporarily*  boosted U.S. growth and
productivity increase rates. I believe this is clearly what has been
happening over the past 6 or 8 years, as the use of Internetworked computers
has spread throughout the economy, replacing older, less efficient methods
of getting things done.

Doyle
However, you emphasize the importance of computing to the economy.  This is
leading to a boom in your opinion lasting a substantial period longer.

Jose
     My guess is that it is going to continue for several more years, and
the whole changeover "boom" would have lasted on the scale of 10, 15 or 20
years, a few business cycles.

Doyle
My own view of the digitization boom is that the financial markets have
grown in size and have a lot of money to invest.  They put the money into
computing because the U.S. market is a bubble and that makes them big
profits.  The problem being as you say;

Jose
    Those 5 million shares quickly get bid up to $100 each, and since there
are a total of 100,000,000 shares, that gives sucker-dot-com a total "market
cap" of 10 billion. That's all well and good until someone, like, say, the
founder of sucker tries to convert his shares into real money, and puts,
say, 10 million shares on the auction block. What will happen is NOT that
he'll get $1 billion, but that the stock price will collapse. The very high
valuation is a function of a relatively small float and of the number of
people in the market betting and speculating that someone else will pay $105
or $110 for a share of sucker in a few weeks.

    See, nobody really believes sucker.com is worth 10 billion.
...
    In the case of dot-com takeovers, nobody is willing to pay full price
for the stock, save other dot com companies whose own paper is just as
insanely overvalued as that of the outfit being acquired.

    It is quite possible to unwind these insane dot-com stock market
valuations without affecting the real economy. The main condition for this
to happen is that the stock in the hands of insiders not be the guarantees
for a bunch of loans, i.e., that not too much of this fictitious capital has
gotten inextricably intertwined with the real capital of banks, brokerage
houses and so on through a process of leveraging.

Doyle
The problem I have with your view is the full faith in a boom being produced
by 'digitization' rather than looking at the boom as related to the
financial markets growth.  I have seen two reports on computing by first the
Fed several years ago, and more recently Scientific American.  I don't have
them at hand.  I could probably dig up the Scientific American article if
requested.  In both cases the main point of the article is that computing
has not produced the efficiencies promised.  Primarily this can be
understood anecdotally by looking at Louis' travails with automating the
archive for this list.  Unanticipated glitches in the software keep causing
disruptions in the system.  On a larger scale this refers to the fragility
of software, for example Y2K is a problem that happens with software and
computing hardware all the time.  It is impossible to humanly understand Von
Neumann sequentially built code with millions of lines of instructions.  So
errors creep in.  Both reports simply point out that computing produces
efficiencies in some areas while offset by errors that keep the system from
performing optimally.

For this reason your emphasis of a computing boom seems odd to me.  Mostly
in the eyes of the capitalist they hope that genetic manipulation of
agriculture will produce the desired boom you assign to computing.
Computing does produce some desirable effects.  Primarily in creating the
opportunity for mass exchange of information in a distributed manner, but it
has little advantage in upping the economy as a whole.  Like the printing
press spreading the literacy of the people, printing or computing itself is
not so important as other forms of material production.

By emphasizing computing you seem to me to buy into the arguments and
hucksterism surrounding computing as the source of the boom.  When the boom
is financial in nature.  You ignore how currency has been a key issue in the
many regional crises generated during the last period of time.  You talk
about 20% ups and downs on the U.S. stock market which is true but not
really altering the speculative bubble.  So your view is focused upon
computing in the same sense that in Holland people focused upon the Tulip
flower.

I really think your point about unwinding stocks without a collapse is
telling.  From your point of view the problem is to settle the bubble in
computing stocks without upsetting the apple cart elsewhere.  This you have
faith can be done.

Jose
    It is quite possible to unwind these insane dot-com stock market
valuations without affecting the real economy. The main condition for this
to happen is that the stock in the hands of insiders not be the guarantees
for a bunch of loans, i.e., that not too much of this fictitious capital has
gotten inextricably intertwined with the real capital of banks, brokerage
houses and so on through a process of leveraging.

Doyle
But in fact this defies the irrational nature of capitalism itself.
Certainly on a small scale people can engineer something like what you say
for individual stocks.  But to bring down the computing sector as whole in a
planned way to bring valuations into line with reality would defy the nature
of stock markets.  Once such a lowering happens money pointed at making
profits must go somewhere safe.  Once faith is lost in a paradigm what is
the safe paradigm?  On a scale of the whole the bottom of the stock market
is invariably below value across the board.  No one knows or can guess how
low that goes.  I think the losses in the Great Depression were more than
80% across the board.  There is nothing to stop the whole market plunging
with the computing Nasdaq.

Dennis pointed at the underlying weakness of the U.S. economy.  For example
in the current headlines the U.S. seems to be abrogating the Anti Missile
treaties because I think the U.S. military wants an arms race.  The U.S.
wants Europe to re-arm to generate profits in the high profit military
sector.  Hence putting pressure upon China in a new Cold War arms race
forces the rest of the world down the old paths of support for traditional
U.S. hegemony.  There is nothing about the computing boom which addresses
the underlying weakness of the U.S. economy vis a viz other countries that
devote more of their effective economy to production not military spending.
The best way to judge that is that Bell Labs in the U.S. was downscaled and
focused upon "practical" research from the previous era of "basic research".
 The U.S. despite the boom seems incapable of returning to a place where it
can fund research like it once did.  Therefore a computing boom is not
really a boom as far as the standard of past U.S. economies dictate.

Since the U.S. is dependent upon military spending and the influence of it's
currency, especially the U.S. banks, the computing boom looks like a
sideshow to me.  Your view seems skewed to me, and your efforts to
illustrate your view seems to me pedantic and abstracted explanatory
demonstrations of the mechanisms of the investing logic without a sense of
how computing fits into the larger world economy.  I am sure Dennis can
statistically argue the case in a way I can't, but the meaning of these
things does not have to rely upon statistics.  The meaning is simply to
understand that financial markets have inflated the computing sector.  The
financial markets are the growth sector for the U.S.  This reliance upon
finance is the key factor.  Other sources of a boom are not relevant by
comparison.  When the bubble bursts computing will look like shit.
cheers,
Doyle









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