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Executive Times |
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2008 Book Reviews |
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Pop!: Why
Bubbles Are Great For The Economy by Daniel Gross |
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Rating: |
*** |
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(Recommended) |
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Click
on title or picture to buy from amazon.com |
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Infrastructure Along
the lines of “there’s gotta be a pony in there somewhere,” Daniel Gross
proposes an interesting thesis in his new book, Pop!: Why Bubbles Are Great
For The Economy. Gross proposes that some bubbles leave behind a usable
commercial infrastructure. His examples include the telegraph, railroad,
internet and real estate bubbles as examples of this phenomenon. Here’s an
excerpt, from the beginning of Chapter 6, “Real
Estate,” pp. 132-134: In
the 1990s, dot-corns and fiber-optic companies were the economic analog to
Miami Dolphins running back Ricky Williams—an inspired professional who
carried the ball with flair, single-handedly powered the offense, and
inspired comparisons to the all-time greats. Post-2001, those
companies also turned out to be the economic analog to Williams—an erratic,
pot-smoking slacker who left his supporters and promoters disappointed. New
Economy companies quickly slashed payrolls and capital investment budgets as
they were revealed to be frauds, cheaters, and number fudgers. In a matter of
weeks, Enron went from 20,000 employees to a few dozen, and WorldCom axed
60,000. Thomas Philippon of New York University and Simi Kedia of Rutgers
Business School found that the hundreds of publicly held companies that
restated earnings in 2000
and 2001,
many of which were in the tech/fiber-optic/dot-corn megaplex, cut
between 250,000 and
600,000 jobs in 2001
and 2002.
And the loss of high-paying jobs at WorldCom and Enron was only partially
offset by the creation of jobs in the high-paying white-collar criminal
defense sector. While
the economy-wide recession ended in November 2001, the domestic business
investment recession deepened. "Real business fixed investment fell for
nine consecutive quarters between the first
quarter of 2001 and the first quarter of 2003," economist Brian Wesbury
noted in the Wall
Street Journal. "This was the worst period of
decline in business investment since the data were first collected in
1947." The slowdown wasn't simply due to broken-down technology
infrastructure builders. As globalization picked up pace, U.S. companies were
more likely to outsource. Large companies like IBM and Dell either cut or
simply added a few positions in the comparatively slow-growing domestic
market; they hired with alacrity in comparatively fast-growing markets like
India and China. Between 2001 and 2004, U.S. foreign direct investment
outflows would rise from $142 billion to $224.1 billion. And so, middle
managers who had fled Microsoft and General Electric in pursuit of dot-com
wampum and casual dress codes often found the doors shut when they tried to
return. As
a result, the United States lost payroll jobs for two more years after the
recession ended. There were fewer private sector jobs in January 2005 than in
January 2001, making George W. Bush the first president since Herbert Hoover
to see payroll jobs decline in a full term. Of course, the job loss between
2000 and 2004 was nowhere near as gruesome as it had been between 1928 and
1932. And for that Bush could thank the rapid emergence of the Pop! dynamic
in the housing and housing-related credit sectors. Most
of Bush's biblical allusions sailed far over the heads of the Washington
press corps, which generally believes the New Testament is a spin-off of
the New Republic.
But in a visit to the Gulf Coast in late August 2006, Bush used
biblical language to sum up the positive impacts of the about-to-burst
housing bubble. "And I suspect that what you'll see, Toby, is there will
be a momentum, momentum will be gathered. Houses will begat jobs, jobs will
begat houses." (And unto them option ARM mortgages shall be given.
Verily, with resets and points few in number and monthly payments, lo into
the third generation.) A
host of macroeconomic trends had spurred real estate in many markets to an
enviable record in the 1990s.
Between 1994
and 1999,
for example, prices of existing homes rose by a healthy 4.4 percent
annual rate, spurred by declining interest rates, the revival of cities from
New York to San Francisco, graying baby boomers buying retirement homes, and
broad economic growth. But starting in 2001 and 2002, the market took off
like cyclist Floyd Landis on the seventeenth stage of the 2006 Tour de
France. Once again, as with the prior Pop! cycles, a spreading sense that new
rules were in effect and the mass willing suspension of disbelief led to an
adrenaline-fueled spiral into mania. Those
readers who enjoy and appreciate counterintuitive arguments will find a lot
to like on the pages of Pop! As
illustrated in the excerpt, Gross’ writing style is lively, which will also
appeal to many readers. Steve
Hopkins, April 21, 2008 |
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The recommendation rating for
this book appeared in the May 2008 issue of Executive Times URL for this review: http://www.hopkinsandcompany.com/Books/Pop.htm For Reprint Permission, Contact: Hopkins & Company, LLC • E-mail: books@hopkinsandcompany.com |
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