Fallout from the Tech Bubble

Sep 2002 //
Bubbles
Economics

Because investors were willing to throw many billions of dollars at the flimsiest of businesses (and mere business plans) during the late 1990s, lots of unproductive companies were founded and funded.  These businesses built offices, bought equipment, borrowed money and hired people until investors finally cut off their funding after realizing how unprofitable these companies were.  As these businesses now unwind, we should not be surprised to find unused offices, idle equipment, bad loans and unemployed people—until the economic resources acquired by these companies can find their way into productive enterprises.  Necessary (and ultimately very beneficial) economic adjustments may take time, but if the history of capitalism is any guide, they will definitely occur.  Further, because of the significant mobility of resources in the U.S., these adjustments will occur more rapidly in our country than in almost any other market economy.  In investment terms, this process will penalize investors in uncompetitive businesses and reward investors perceptive enough to foresee and take advantage of the adjustment process.