RE: Krugman critiques Dow 36K

From: Bostrom,N (pg) (N.Bostrom@lse.ac.uk)
Date: Fri May 05 2000 - 12:01:14 MDT


Robin wrote:

>Krugman is well worth reading on most topics.

Here are some predictions that Krugman published in June 98. (from
http://members.home.net/copernicus/economics.html)

                " Productivity will drop sharply this year. Nineteen
ninety-seven, which was a very good year for worker productivity, has led
many pundits to conclude that the great technology-led boom has begun. They
are wrong. Last year will prove to have been a blip, just like 1992.

                * Inflation will be back. Wages are rising at almost 5
percent annually, and the underlying growth of productivity is probably only
1.5 percent or less. Sooner or later, companies will have to start raising
prices. In 1999 inflation will probably be more than 3 percent; with only
moderate bad luck--say, a drop in the dollar--it could easily top 4 percent.
Sell bonds!

                * Within two or three years, the current mood of American
triumphalism--our belief that we have pulled economically and
technologically ahead of the rest of the world--will evaporate. All it will
take is a few technological setbacks or a mild recession here while Europe
or Japan recovers a bit.

                * The growth of the Internet will slow drastically, as the
flaw in "Metcalfe's law"--which states that the number of potential
connections in a network is proportional to the square of the number of
participants--becomes apparent: most people have nothing to say to each
other! By 2005 or so, it will become clear that the Internet's impact on the
economy has been no greater than the fax machine's."

This last statement seem extraordinary to me. I would have thought the
market cap of Cisco alone is greater than the sum total of the world's fax
machine industry (and already was in '98?). What am I missing?

Nick Bostrom
Dept. Philosophy, Logic and Scientific Method
London School of Economics
Email: n.bostrom@lse.ac.uk
Homepage http://www.hedweb.com/nickb



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