The Double Bubble at the Turn of the Century: Technological Roots and Structural Implications

Abstract

This paper argues that the two boom and bust episodes of the turn of the century-the internet mania and crash of the 1990s and the easy liquidity boom and bust of the 2000s-are two distinct components of a single structural phenomenon. They are essentially the equivalent of 1929 developed in two stages, one centred on technological innovation, the other on financial innovation. Hence, the frequent references to that crash, to the 1930s and to Bretton Woods, are not simple journalistic metaphors for interpreting the ‘credit crunch’ and its solution, but rather the intuitive recognition of a fundamental similarity between those events and the current ones. The paper holds that such major boom and bust episodes are endogenous to the way in which the market economy evolves and assimilates successive technological revolutions. It will discuss why it occurred in two bubbles on this occasion; it examines the differences and continuities between the two episodes and presents an interpretation of their nature and consequences.

Keywords: Technological revolutions, Major technology bubbles, Financial crises, Financial innovation, Financial regulation

JEL Classification: G01, O33, N20