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How the Tech Boom Terminated California's Economy

16 points by spudlyo 17y ago

The real estate crash is really just the second leg of the dot.com crash--the failure of housing to absorb the tremendous cash surplus generated by the irrational exuberance of Internet investors.

larryfreeman 17y ago
From my view, the argument behind the article is not very strong. His best data point is that he talked to an entrepreneur who didn't know what to do with $20 million. The argument that technology start ups don't create value seems to be disproven by the current valuations of Google, Facebook, Twitter, etc.
jswinghammer 17y ago
I don't see how any sector of the economy is responsible for the inevitable bust that follows an inflationary boom. We had massive inflation over the last 8 years and when that inflation started to be curbed the bust that followed is no one's fault but the people who started the inflation in the first place. California's budget woes are the result of spending too much during a boom not realizing that we were all living in a fantasy world. The article doesn't address the fact that intellectual property is a form of wealth that is perfectly fine to invest in. Yes there was a lot of errors made during the boom but that's true of all of the booms including our most recent stock and housing bubbles. I'm still long on the technology industry as a whole. I think there's a lot of good work still to come and I'm looking forward to seeing it. I just hope that the next time inflation comes our way we identify it sooner and act accordingly.
- anamax 17y ago
  > We had massive inflation over the last 8 years http://www.bls.gov/data/inflation_calculator.htm http://www.bls.gov/data/inflation_calculator.htm disagrees. We had a huge run-up in house-purchase prices, especially in certain markets. Other things were roughly stable. Technology got cheaper.
  - jswinghammer 17y ago
    Inflation is an increase in the money supply. Rising prices are a side effect of that increase. The government has many reasons to hide and distort real rising prices including TIPS and just generally wanting to stay in power. Inflation was directed by the federal reserve for 8 years at a record pace. When the fed lowers interest rates they in effect increase the money supply through the expansion of bank credit which is the primary means by which money is introduced into the economy.
    - anamax 17y ago
      > Inflation is an increase in the money supply. Nope. http://en.wikipedia.org/wiki/Inflation http://en.wikipedia.org/wiki/Inflation "inflation is a rise in the general level of prices of goods and services in an economy over a period of time." An increase in the money supply is an increase in the money supply. If the increase matches other factors, all is generally good. If it doesn't bad things happen. > Rising prices are a side effect of that increase. Rising prices are inflation. They happen when the money supply increases faster than the relevant function of wealth and "velocity". > When the fed lowers interest rates they in effect increase the money supply through the expansion of bank credit which is the primary means by which money is introduced into the economy. "the primary means"? The fed discount rate isn't that effective at affecting the money supply; it has a marginal effect. If it was an effective means, they'd have used it. Instead, they're printing money.
helveticaman 17y ago
I disagree, but voted it up for the interesting counterpoint.
10ren 17y ago
Sewn seeds are unlikely to grow http://www.merriam-webster.com/dictionary/sown http://www.merriam-webster.com/dictionary/sown I rarely practice pedantry, but this usage's (to me) almost-plausible unreality twisted my mind. I suspect it signals the quality of aspects of the article that are less susceptible to verification.
sutro 17y ago
Contrarian, concise, convincing. Wonderful writing.
mnemonicsloth 17y ago
The Economist calls California the ungovernable state. They have a much more realistic appraisal of what's going on here: http://www.economist.com/displayStory.cfm?story_id=13649050 http://www.economist.com/displayStory.cfm?story_id=13649050

16 points by spudlyo 17y ago

The real estate crash is really just the second leg of the dot.com crash--the failure of housing to absorb the tremendous cash surplus generated by the irrational exuberance of Internet investors.

larryfreeman 17y ago

From my view, the argument behind the article is not very strong. His best data point is that he talked to an entrepreneur who didn't know what to do with $20 million. The argument that technology start ups don't create value seems to be disproven by the current valuations of Google, Facebook, Twitter, etc.

jswinghammer 17y ago

I don't see how any sector of the economy is responsible for the inevitable bust that follows an inflationary boom. We had massive inflation over the last 8 years and when that inflation started to be curbed the bust that followed is no one's fault but the people who started the inflation in the first place. California's budget woes are the result of spending too much during a boom not realizing that we were all living in a fantasy world. The article doesn't address the fact that intellectual property is a form of wealth that is perfectly fine to invest in. Yes there was a lot of errors made during the boom but that's true of all of the booms including our most recent stock and housing bubbles. I'm still long on the technology industry as a whole. I think there's a lot of good work still to come and I'm looking forward to seeing it. I just hope that the next time inflation comes our way we identify it sooner and act accordingly.

anamax 17y ago
> We had massive inflation over the last 8 years http://www.bls.gov/data/inflation_calculator.htm http://www.bls.gov/data/inflation_calculator.htm disagrees. We had a huge run-up in house-purchase prices, especially in certain markets. Other things were roughly stable. Technology got cheaper.
- jswinghammer 17y ago
  Inflation is an increase in the money supply. Rising prices are a side effect of that increase. The government has many reasons to hide and distort real rising prices including TIPS and just generally wanting to stay in power. Inflation was directed by the federal reserve for 8 years at a record pace. When the fed lowers interest rates they in effect increase the money supply through the expansion of bank credit which is the primary means by which money is introduced into the economy.
  - anamax 17y ago
    > Inflation is an increase in the money supply. Nope. http://en.wikipedia.org/wiki/Inflation http://en.wikipedia.org/wiki/Inflation "inflation is a rise in the general level of prices of goods and services in an economy over a period of time." An increase in the money supply is an increase in the money supply. If the increase matches other factors, all is generally good. If it doesn't bad things happen. > Rising prices are a side effect of that increase. Rising prices are inflation. They happen when the money supply increases faster than the relevant function of wealth and "velocity". > When the fed lowers interest rates they in effect increase the money supply through the expansion of bank credit which is the primary means by which money is introduced into the economy. "the primary means"? The fed discount rate isn't that effective at affecting the money supply; it has a marginal effect. If it was an effective means, they'd have used it. Instead, they're printing money.

helveticaman 17y ago

I disagree, but voted it up for the interesting counterpoint.

10ren 17y ago

Sewn seeds are unlikely to grow http://www.merriam-webster.com/dictionary/sown http://www.merriam-webster.com/dictionary/sown I rarely practice pedantry, but this usage's (to me) almost-plausible unreality twisted my mind. I suspect it signals the quality of aspects of the article that are less susceptible to verification.

sutro 17y ago

Contrarian, concise, convincing. Wonderful writing.

mnemonicsloth 17y ago

The Economist calls California the ungovernable state. They have a much more realistic appraisal of what's going on here: http://www.economist.com/displayStory.cfm?story_id=13649050 http://www.economist.com/displayStory.cfm?story_id=13649050