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January 27, 2000 atimes.com
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Media/Information Technology

What if Internet stocks aren't a bubble?
By Spengler

By now, every business publication in the known universe has printed black-and-white evidence that Internet stocks are a bubble. The evidence generally boils down to one calculation, namely that the popular dot.com names would have to achieve annual earnings growth rates several times larger than Microsoft's in order to justify their present equity price.

What if it isn't a bubble? What if consumers want to double or quadruple their spending on whatever it is the Internet has to offer every year for the next 20 years? What if they will pay a premium to watch their favorite episode of Pee-Wee Herman or the Lone Ranger rather than the latest sit-com? What if they will spend heavily to explore the cutting edge of anatomical possibility on the porn sites?

Recall the dying, drug-addicted Howard Hughes, a recluse in the penthouse suite of a Las Vegas hotel, hair and fingernails untrimmed for months. That was in the 1960s, and Hughes passed the time watching film after film in his private screening room, a plutocrat's privilege. With the wonder of the Internet, cable hookups, and the Time Warner-AOL film library, every Internet user can turn into a dissipated freak like Howard Hughes. That's American democracy at work.

Internet stocks just might offer good value in a world of Howard Hughes wannabees. Consumers of the world unite: you have nothing to lose but your brains. Ask yourself: are you sure, really sure, that this isn't happening?

Why should it surprise anyone? There's nothing new under the sun. The silly cant about the ''new economy'' and the ''Internet Age'' ultimately will go the way of other imposters. That does not reduce the likelihood that the great fortunes of our epoch will continue to be made on the Internet for some time. Yes, electronic auctions save the trouble of attending the live sort, and an electronic marketplace has advantages over the medieval fair (although it is less entertaining).

What enthralls the Internet's true believers is the limitless download of cheap and salacious entertainment: pornography, popular music, gossip, flirting, fantasy role-playing, and, of course, shopping.

Now that the market capitalization of Internet companies enables them to gobble up traditional providers of goods and services, the Internet seems like the driving force of global markets. The world economy will depend upon the adolescent tastes of computer owners in the industrial world.

The bubble could pop, or - frightening thought - it might actually succeed. Re-ordering the priorities of the world economy around the vices of affluent people is nothing new. We went through all of this before in the 17th century.

Item: After the conquest of the New World, Spain's entire capture of precious metals went to India and China to pay for luxury cloth and spices. That did for approximately 90 percent of the indigenous pre-Colombian population.

Item: The African slave trade instituted by the Portuguese and later the British first produced sugar in Brazil and the Caribbean, to be turned into cheap intoxicants for the European market. Tobacco was a second absorber of slave labor. Cotton became important much later. Production of these vices did for a third of the West African population.

Item: In order to sell cheap cotton cloth to India, the East India Company arranged for Indians to grow opium and for Chinese to buy it. All the silver mined in Latin America, which two centuries earlier had passed to China to pay for silks, found its way back to Europe to pay for opium. That did for untold millions of Indians and Chinese.

Does the Internet shrink the world? How can we compare it to an earlier technological revolution, namely ocean navigation - including breakthroughs in astronomy, shipbuilding, time measurement, map-making? At the end of the day, silks, cottons, coffee, tea, spices, sugar, rum and tobacco ruined four continents as the world's capital flowed to Western Europe.

This time the world's capital is flowing to the United States. America's capital account surplus (equal to its current account deficit) presently stands at 4 percent of Gross Domestic Product, the largest proportion on record. $1 billion a day in foreign capital makes its way to the American capital markets. Three-quarters of the world's free savings flow to the US, from emerging Asia as well as from Europe and Japan. Rather than borrow money from the rest of the world, non-Japan Asia on balance now lends money to the United States.

If the rest of the world wants to put its savings at the service of turbo-charged pop culture, no one should blame the Web promoters. Tobacco, rum, silks and slaves were a sustainable growth industry three hundred years ago. Why not the Web today?



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