As the tech meltdown continues, there is more to this story than the spectacular collapse of the tech-laden NASDAQ stock index. Indeed, manufacturers of computer and telecommunications equipment have posted terrible financial results as have many wireless telecommunications companies. As Greg Ip wrote in his August 20, 2001 page 1 Wall Street Journal article ("A year Into Slowdown, Economy's Last Pillars Show Signs of Stress"), even commercial real estate developers are being stung right across the street from my office in downtown Bellevue, WA (more on this later). How could so many intelligent businessmen make such huge errors in such a compressed timeframe? One answer has to do with the hyperreality created by the three-way collision of our left-leaning educational establishment, the internet, and inflationist Federal Reserve policy. From this collision emerged "Homo Digitus": the new cyber-man who had to be wired twenty-four hours a day, seven days a week. The following is a brief story of this mythical man and his monument to malinvestment in Bellevue, WA (the Bellevue Technology Tower).
In reading Murray Rothbard's wonderful book Education, Free & Compulsory, it became all the more clear to me how thoroughly left-wing and pro central government the teaching profession has become. Heck, in public school, I was "taught" that FDR personally rescued our country from the ravages of the capitalist-induced depression. Additionally, my teachers "taught" me how to become a good environmentalist through having us parrot Woodsy the Owl's wise words of "give a hoot don't pollute". In looking back at my public-school education, I have no doubt that I was being indoctrinated to become a good citizen. If this sounds implausible, Murray Rothbard's aforementioned book contains a wonderful quote from the great philosopher Herbert Spencer (as follows):
For what is meant by saying that a government ought to educate the people? Why should people be educated? What is education for? Clearly, to fit the people for social life — to make them good citizens. And who is to say what are good citizens? The government: there is no other judge. And who is to say how these good citizens may be made? The government: there is no other judge. Hence the proposition is convertible into this — a government ought to mold children into good citizens…It must first form for itself a definite conception of a pattern citizen; and, having done this, must elaborate such system of discipline as seems best calculated to produce citizens after that pattern. This system of discipline it is bound to enforce to the uttermost. For if it does otherwise, it allows men to become different from what in its judgment they should become, and therefore fails in that duty it is charged to fulfill.
With this being said, it is important to understand that there is a general belief that mankind is moldable and can be transformed. This subtly Maoist mindset permeates the teaching profession. Indeed, it even appears that this mindset permeated high-tech companies throughout the U.S.
In an accident of history, the internet emerged and was gaining widespread popularity just at the same time the Federal Reserve was inflating the money supply in dramatic fashion (in the late 1990s). In particular, the Federal Reserve inflated the money stock after the Long Term Capital Management debacle (in 1998) and then again (in 1999) in anticipation of a Y2K disaster. As a result of this loose-money policy (by the Federal Reserve), banks, venture capitalists, and many individual investors were awash in cash and, thus, willing to fund any scheme involving the internet. Internet IPOs were abound and internet stock valuations were heading to the moon. Not much longer after the rate of increase in the money stock peaked in 1999 (as measured by MZM, M2, and M3) the NASDAQ peaked in March of 2000. In August of 2000, construction of the Bellevue Technology Tower began in earnest.
With investors awash in cash (thanks to the Federal Reserve), a hyperreality emerged in which the internet was credited with playing the central role in the seemingly effortless creation of wealth (i.e. via surreally high valuations for internet and related tech stocks). Undoubtedly, a new hyperreal man had emerged in which virtually any information could be transformed into money. The true believers, in this alchemy of the internet, believed they had transformed into a new man (Homo Digitus) fit for the wonders of wealthy cyber-living.
For others to follow, and to be transformed, it would be necessary for the masses (and for high-tech corporate leaders) to share the vision of an internet-transformed cyber life. If teachers can mold students into good citizens, then why can't a person mold himself into Homo Digitus? With the help of Palm Pilots, powerful PCs, and internet accessible cell phones, "information" could be turned into money (especially through day trading on the stock market). With a fury, high-tech corporate America responded by producing a myriad of electronic gizmos and by placing millions of miles of fiber optic cable underground. High-tech corporate America's response reflected a faith in man's ability to transform.
A natural response, to markedly increased business activity, is to construct new buildings to house new companies. Here in downtown Bellevue, WA, three notable construction projects began last year: The Summit project ($100 million range), Lincoln Square ($350 million), and Bellevue Technology Tower ($118 million). In particular, the Bellevue Technology Tower was designed to house the companies of the future. Homo Digitus could come to work in a high-tech building with such features as:
- Abundant space for transformers and associated switchgear
- Abundant space for back-up generators
- Large connectivity spaces
- Redundant conduit entries and cable risers
- Large radio rooms for satellite electronics
The Bellevue Technology Tower was to be a glorious new building fit for our new cyber-world.
As Greg Ip wrote in his Wall Street Journal article, the Bellevue Technology Tower project has been halted "…with only the parking garage completed…" Mr. Ip's view is that this ill-fated construction project was a victim of the dot.com/high-tech crash. Naturally, the article implies that this project may be resurrected if the Federal Reserve's interest rate cuts perform their magic (perhaps the Fed's .25% rate cut on August 21, 2001 will be enough to get the Bellevue Technology Tower project going again?).
There is a better explanation as to what happened to the Bellevue Technology Tower. It ties together the Fed, the internet, and the illusion that humans are moldable as plastic. The Federal Reserve's aforementioned easy-money policy made it appear that money could be plucked effortlessly from cyberspace. After all, the Federal Reserve does create money out of thin air. This money creation lead to a Fed-induced mania revolving around the internet and its promise to transform mankind. Dr. Paul A. Cantor does an excellent job of describing the connection between hyperreality (mania) and the Federal Reserve.
If modernity is characterized by a loss of sense of the real, this fact is connected to what has happened to money in the twentieth century. Everything threatens to become unreal once money ceases to be real…That fact is ultimately to be traced to the biggest counterfeiter of them all — the government and its printing press… Inflation is that moment when as a result of government action the distinction between real money and fake money begins to dissolve. That is why inflation has such a corrosive effect on society. Money is one of the primary measures of value in any society, perhaps the primary one, the principal repository of value. As such, money is a central source of stability, continuity, and coherence in any community. Hence to tamper with the basic money supply is to tamper with a community's sense of value. By making money worthless, inflation threatens to undermine and dissolve all sense of value in a society.
So there you have it. Creating money out of thin air can dissolve all sense of value. The Federal Reserve induced the internet mania. Moreover, especially in a mania, people can even be fooled to believe that mankind can remake himself (once again an unfortunate vestige of Maoism and embraced, perhaps unwittingly, by educators). Correspondingly, in the highly tangible world of construction, an easy-money policy (by the Federal Reserve) can fool a developer into constructing a building that should not have been built in the first place.