Ed Driscoll

DOES 'NET SHORT CIRCUIT ECONOMY?

DOES ‘NET SHORT CIRCUIT ECONOMY? Reuters has an article with the headline:NetTrends: Is the Net Short-Circuiting the Economy?

Many might dismiss that notion, but an economist at the University of California, Los Angeles, believes the Internet may be “one of the most important profit-killing innovations” in years — undercutting business profits as the world’s largest economy struggles to emerge from recession.

Edward Leamer, author of the widely watched Anderson economic forecast issued quarterly, said while the Internet definitely boosts productivity, it may also be the reason U.S. corporate earnings sank at the end of the 1990s.

“The fundamental question is: Where did the profits go?” Leamer said in a recent telephone interview. “My number one hypothesis is it has to do with New Economy tools, both the Internet and communication devices.”

My answer to all of this is “so what?”. The Internet isn’t going away. People aren’t going to stop using it. So it’s up to businesses to adapt to it, rather than moaning that it’s taking away their profits. And complaining that the Internet may be “the reason U.S. corporate earnings sank at the end of the 1990s,” discounts the actions of the Federal Reserve in the late 1990s to tighten money supply to fight an imaginary inflation beast, the spike in oil prices during that time, as well as the Clinton-era Justice Department’s suit against Microsoft, which sent the Nasdaq cratering.