After the Bursting of the Dot-Com Bubble

...And the improvements in productivity and efficiency will not be reversed, even if the economy slows significantly, as it now is deemed likely to do...

...We now know that the massive investment in new technologies has not removed the speed limit on economic growth...

...Finally, it should not surprise us that the accumulation of experience in this era of the so-called "new economy" has led to a more sober appraisal of the impact of new technologies on the American economy...

...We may have to learn to live the next few years with growth in the 3 percent annual range rather than the more fevered pace of recent years...

...But that would have been considered economic nirvana not so long ago...

...Dick Cheney made that clear when he told reporters that the incoming managers of our fiscal policy fear that we are on the verge of a recession, a position Bush's key economic adviser, Larry Lind-sey, has held since he transferred his own investments into cash some two years ago...

...compete with other varieties of flower—just as e-tailers have been learning how to compete with bricks-and-mor-tar retailers...

...They learned how to Irwin M. Stelzer is a contributing editor to THE WEEKLY STANDARD and director of regulatory studies at the Hudson Institute...

...They learned how to combat the viruses that periodically destroyed their business (something Microsoft et al...

...but we also know that investment in the new information infrastructure has increased the sustainable annual growth rate from something like 2 percent to closer to 4 percent...

...Davidow is right, and in the post-bubble history of the tulip business may lurk some clues to the fate of the surviving dot-coms, and the impact of the revolution they and their now-departed brethren have wrought...

...Bush will use the current slowdown, and the threat of a hard landing, as a reason to cut taxes, now...

...For another, the bursting of the dot-com bubble does not mean that the new information infrastructure has disappeared...

...Perhaps most important of all of our new knowledge, arguably even more important than the new technologies left with us after the dot-com bubble burst, is our increased understanding of the policy tools available to cope with economic downturns...

...Indeed, as recently as 1985 the price of the red spider lily soared in China, reaching $50,000 for the most coveted varieties, "an amount that puts even the sums paid at the height of the Dutch tulip craze to shame," according to Dash...

...BY IRWIN M. STELZER Buried deep in a recent issue of the Wall Street Journal is an interview with venture capitalist Bill Davidow...

...After all, he successfully prevented a major economic downturn after a more serious stock market plunge in 1997 by easing monetary policy...

...But at far lower prices, with the specialty bulbs doing better than the garden variety tulip...

...They converted their business from a seasonal one to one that could produce all year round—something e-tailers who have survived the recent bloodbath are starting to figure out...

...To get the support of moderate Democrats, he may have to skew the cut in favor of lower income groups...

...As the crash in the value of Internet companies sours investors and fills the financial pages with tales of impending doom, Davidow has taken to reminding all who will listen, "There was a tulip business even after the tulip mania...

...have still to learn...

...The speculators had gone, but there was still a market for the flower...

...Investors know that Federal Reserve Board chairman Alan Greenspan can stimulate the economy by lowering interest rates, which he has plenty of room to do since rates are still high in real terms...

...It will be a life enriched by the technologies introduced by those dot-coms, even the ones that didn't survive long enough to reap the rewards of their technological genius...

...It should come as no surprise that companies that not only failed to earn any money as their customer lists swelled, but touted their mounting losses as proof of their success in growing their businesses, should eventually fall from investor favor...

...And just as surely as you can have tulips now whenever you please, there will indeed be life after the bursting of the dot-com bubble...

...And it is not to stretch the analogy between tulip-growing and the dot-com business to cite Dash's observation that "most of the new and inexperienced growers who had been attracted by the prospect of rich profits gave up the business or were driven out...

...These are permanent changes...

...That combination of looser monetary and fiscal policies can go a long way towards preventing this slowdown from becoming a recession...

...That's not as revolutionary as some of the more strident "new economy" advocates have been claiming, but it is enough to make an unemployment rate of only 4 percent sustainable in the long run without setting off a round of wage-price inflation...

...Which prompted me to dig out my copy of Mike Dash's Tulipomania: The Story of the World's Most Coveted Flower & The Extraordinary Passions It Aroused...

...The benefits would trickle up...

...But the new money that these consumers find in their pockets is more likely to be spent than it would be if the beneficiaries were the higher income groups that the Bush team, left to its own devices, would more greatly favor...

...For one thing, investors have short memories: Tulipomania was followed by a spurt in the prices of hyacinths in the 18 th century, and by one in dahlias in 1838...

...Nor should it be surprising that inexperienced entrepreneurs, whose sole lasting contribution to American life has been the destruction of the business suit, found that there is more to running a successful business than attracting the adulation of equally young and casually clad reporters for trade magazines...

...What we have, then, is what might be called the enduring aftermath of the dot-com bubble—a new way of doing business, greater productivity in important sectors of the economy, lower transaction costs as buyers and sellers come together without middlemen, new exchanges in which everything from electricity to broadband capacity can be traded efficiently, and an increase in consumer power to resist price increases...

...The fact that the business graveyard is overflowing with the corpses of dot-coms tells us less about the future role of the Internet in our economic lives than it does about the propensity of some investors to irrational exuberance...

...In short, although the past is not necessarily prologue, history suggests that there is life after a financial bubble bursts...

...The speculative frenzy in tulips that seized 17th-century Holland collapsed in 1637, but of course the trade in bulbs did not disappear...

...Prices fell, but in a few years "the trade regain[ed] some sort of equilibrium...

...Eventually, bulb growers learned how to turn a profit again...

...Investors know, too, that president-elect George W. Bush's team aims to ease fiscal policy by persuading Congress to go along with a tax cut...