FC: Gore, Bush, and the new economy, by Paul Krugman

[Declan McCullagh <declan () well com>]

http://www.nytimes.com/2000/10/22/opinion/22KRUG.html

The New York Times
October 22, 2000

RECKONINGS
Unsound Bytes?
By PAUL KRUGMAN

Last week George W. Bush accused Al Gore of "analog thinking in a digital 
age." It's a terrific line; my compliments to whoever wrote it. It's also a 
bit unfair.

True, Mr. Gore didn't invent the Internet — but then, he never said he had. 
What he did say was, "During my service in the United States Congress, I 
took the initiative in creating the Internet." That was a deeply 
unfortunate sentence — but what makes it so unfortunate is that now it is 
impossible for Mr. Gore to get the credit he actually deserves. Declan 
McCullagh, the Wired writer who first played up Mr. Gore's remark, puts it 
this way: the vice president "was one of the first politicians to realize 
that those bearded, bespectacled researchers were busy crafting something 
that could, just maybe, become pretty important."
        
For what it's worth, tech-sector C.E.O.'s seem to be divided about evenly 
between Messrs. Gore and Bush. That is a sharp contrast with C.E.O.'s at 
large, who overwhelmingly favor Mr. Bush — a preference cynics might 
attribute to the large personal gains that people with seven- or 
eight-figure incomes would receive from that tax cut.

Still, Mr. Bush is right: Mr. Gore doesn't know how to manage the new 
economy. But then neither does Mr. Bush. And neither does anyone else.

The big difference between the new economy and the old is the changed 
nature of investment. In the past, businesses primarily invested in the 
tangible means of production, things like buildings and machines. The value 
of a company was at least somewhat related to the value of its 
physical  capital; to grow bigger, a business had to build new factories 
roughly in proportion to the increase in its sales. But now businesses 
increasingly invest in intangibles. And once you've designed a chip, or 
written the code for a new operating system, no further investment is 
needed to ship the product to yet another customer.

One consequence of the changed nature of investment is a strong tendency 
for markets to develop into temporary monopolies. Why monopolies? Because 
when the required size of investment doesn't depend on how much you sell, a 
bigger market share is definitely better. Why temporary? Because sooner or 
later, and usually sooner, new technology makes your old investment worthless.

[...]




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