[extropy-chat] Slashdot draft: Prediction markets and spacedevelopment

Mike Lorrey mlorrey at yahoo.com
Tue Jun 14 16:54:17 UTC 2005



--- Technotranscendence <neptune at superlink.net> wrote:

> On Monday, June 13, 2005 6:46 PM Mike Lorrey mlorrey at yahoo.com wrote:
> >>> Iridium suffered from the dot com meltdown melting
> >>> down the disposable incomes of millions of tech
> >>> workers... the dot com meltdown was caused by the
> >>> TCRA of 1998.
> >>
> >> Pardon my ignorance, but what's the TCRA?
> >
> > TeleCommunications Reform Act of 1998. It essentially
> > killed the 'last mile' of fiber optic deployment by telling
> > telecoms that they had to give their competitors access
> > to their residential fiber optic customers for less than
> > their cost, so the telecoms decided not to do it.
> 
> While I believe the TCRA helped lay the groundwork for the Dot-Com
> Bust, I don't think it's the only or even the biggest factor. I tend
> to side more with the view presented in "Does Austrian Business Cycle
> Theory Help Explain the Dot-Com Boom and Bust?" by Gene Callahan and
> Roger W. Garrison (in _Quarterly Journal of Austrian Economics_ 6(2)
> [Summer 2003]).  In other words, I think inflation (and moral hazards
> caused by Federal bailouts during the 1990s) created a boom that
> inexorably had to result in a bust.
> 
> That said, do you really believe the TCRA alone lead to the Dot-Com
> Bust?  What other factors were involved?

Economic cycles are highly dependent upon very slight changes in
exponential growth factors, because, like compounded interest, they
pile up (which is why changing interest rates is the most effective way
to control economic cycles). 

Optical fiber has a bandwidth at the low OC-3 SONET standard is 155.5
megabits per second. This is what a residential account would have seen
if TCRA had not been passed. This is two orders of magnitude higher
than what we, today, regard as 'high bandwidth'. 100 times the
information flow means potentially 100 times the economic activity.

This amount of bandwidth would have enabled mass usage of high fidelity
virtual reality on an everyday basis. Many high bandwidth internet
applications were in development in the dot com world, expecting the
'last mile' to be solved. Imagine being able to do business in virtual
reality from anywhere, with all your communications being totally
encrypted with extremely strong encryption, so the government had no
way of knowing not just how much money you made, or where you kept it,
but even how you made your money. This was the world we were heading
into: the world of Snow Crash, where the Federal government would be
fated to shrink to relative unimportance as its ability to collect
taxes became castrated and it had to sell of its assets to reduce its
debt load. Neal Stephenson saw how this would happen in his story "The
Great Simoleon Caper" which was published in Time Magazine in 1996. It
scared the crap out of people in government.

Enron, Global Crossing, and Worldcom all had invested heavily in
backbone (tens of billions of dollars) in expectation of widespread
residential fiber optic being available. When the telecoms rebelled
against the anti-economic strictures of the TCRA, these three companies
saw the value of their fiber backbone investments depreciate wildly.
They sustained massive capital losses due to lost revinues, revinues
that did not materialize because nobody was getting optical fiber to
their homes. Their business plans evaporated, and they had to hide the
losses to keep their stock values up. Enron was also hurt by California
defaulting on its power bills, but that is another story.

The dot com industry was heavily leveraged on their stock investments.
Dot com VC's relied on their stock portfolios to support their new
investments. As their investments in what they thought were blue chip
technology companies like Enron, Worldcom, and Global Crossing started
evaporating, their ability to leverage capital for new dot com ventures
also evaporated.

The dot com boom of the late 90's would have been a permanent
self-sustaining business cycle if govenment had not intentionally
castrated it with the TCRA. Of course, they did other things, like
rigging the California energy deregulation law, and changing accounting
standards to work against technology companies. Today we are left with
a popular history that claims that Ken Lay, Fastow, and the Enron gang
killed the dot com boom, when in actuality they were the guys who were
caught trying to bail out the boat as it was sinking. They were not the
guys who fired the torpedo.

Austrian or other business cycle economics were not prepared to deal
with the dot com cycle because they (a) do not figure in changes in
government interference, and b) were not prepared to factor for massive
changes in worker productivity that results from advances in
technology. No current economics really can deal very well with
exponential changes in technology, and another problem is that with
exponential changes in the economy, the government and the fed's
ability to respond in real time, or to even collect the information
needed to make decisions about responses that are meaningful, are
seriously hampered, even when the government and the fed are trying to
be helpful.

The measure in the TCRA that prevented 'the last mile' of optical
deployment was merely one of many similar measures around the country
where many communities saw self-appointed 'public interest' groups
lobbying before public utility boards and commissions for
'competitiveness' measures when phone companies were planning fiber
deployment. These groups got local ISPs to support them with scare
stories about how they'd be 'shut out' of the ISP market by the
telecoms if they didn't demand competitiveness measures. The primary
beneficiaries, of course, were the cable tv companies, which already
had protected monopolies, and were funding these 'public interest'
groups to prevent the telecoms from leapfrogging them when the cable
industry wasn't prepared to deliver cable internet everywhere (we just
got it two years ago here in Sullivan County).

Mike Lorrey
Vice-Chair, 2nd District, Libertarian Party of NH
"Necessity is the plea for every infringement of human freedom.
It is the argument of tyrants; it is the creed of slaves."
                                      -William Pitt (1759-1806) 
Blog: http://intlib.blogspot.com

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