"The Economist" describes how
WorldCom executives flaunted the cornucopian doubling of Internet
traffic every 100 days. Telecoms predicted a tsunami of clients
clamoring for G3 wireless Internet services. Electronic publishers
gleefully foresaw the replacement of the print book with the much
heralded e-book.
The irony is that the new economy self-destructed because most of its
assumptions were spot on. The bottlenecks were, indeed, temporary.
Technology, indeed, delivered near-cost-free products in endless
quantities. Scarcity was, indeed, vanquished.
Per the same cost, the amount of information one can transfer through a
single fiber optic swelled 100 times. Computer storage catapulted
80,000 times. Broadband and cable modems let computers communicate at
300 times their speed only 5 years ago. Scarcity turned to glut. Demand
failed to catch up with supply. In the absence of clear price signals -
the outcomes of scarcity - the match between the two went awry.
One innovation the "new economy" has wrought is "inverse scarcity" -
unlimited resources (or products) vs. limited wants. Asset exchanges
the world over are now adjusting to this harrowing realization - that
cost free goods are worth little in terms of revenues and that people
are badly disposed to react to zero marginal costs.
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