GEORGE GILDER
George Gilder is a full-time pundit of technology's promise. He immerses himself in the geekiest of details and publishes pricey newsletters forecasting marvels (gildertech.com).
Wired: Are the recent sky-high stock valuations a sign of prosperity, or madness?
Gilder: I don't think Internet valuations are crazy, I think they reflect a fundamental embrace of huge opportunities. Virtually all forecasts estimate something like a thousandfold rise in Internet traffic over the next five years. That means that if you are an Internet company today, you are dealing with only a tenth of 1 percent of your potential traffic in just a couple of years. In 10 years, at this rate, there would be a millionfold increase.
Does the Y2K glitch derail the ultraboom?
I am not terribly frightened by Y2K, to tell the truth. There may be some bad days associated with Y2K, but there are always bad days associated with computers.
What about the poor?
By all material dimensions, today's poor - the bottom fifth - live a lot better than the upper-middle class of 1950. In fact, the average American today lives better than the millionaires of the 1800s.
But will they prosper as quickly as the rich?
The gap between rich and poor is not widening. This is a claim that is usually based on myths. Dubious statistics about the poor in America leave out, among other things, pension funds, Social Security payments, the value of home ownership, and the multiplication of smaller households. The image of the rich, on the other hand, is of people spending all their income. In the first place, rich people overwhelmingly have their money invested. The way capitalism works is that the people who understand how to invest get the money to invest. That is what allows the economy to expand and create jobs of ever better quality in ever larger numbers.
Is ultraprosperity an American phenomenon?
The first impact of technology's recent progress was to bring a billion Asians into middle-class prosperity. Prosperity is closing gaps between nations.
Anything worry you about the boom?
I worry that so many people don't have any comprehension of how to create wealth by serving others. They have been taught by Marx and 50 years of kleptocracy that you get money by taking money from others, rather than by serving others, which is what capitalism is all about. Success in capitalism comes from people willing to suppress their own immediate desires and temptations so they can achieve long-term goals.
Is there any downside to the upside?
I don't think either the Internet or prosperity solves the problem of human evil. Evil people around the world will be able to conspire using new technology and may well lash out at the wealth that is being generated. This prosperity could also be subverted by some fabulous outbreak in hedonism.
Is this age of abundance inevitable?
Achieving prosperity without hedonism will entail heroic leadership. When I talk about these amazing trillions of dollars of new wealth that will be generated, I don't imagine that it will be easy. Or inevitable. It is possible to blow it.
WALTER WRISTON
For 17 years, Walter Wriston served as chair and CEO of Citicorp/Citibank, where he revealed himself as one of the first new economists. "Information about money," he is noted for saying, "has become as important as money itself." Since retiring in 1984, he's published two books, including The Twilight of Sovereignty: How the Information Revolution Is Transforming Our World, which demonstrated that while he may not be as engaged in finance as he once was, he remains one of its true oracles.
Wired: Is a crash inevitable?
Wriston: Crashes are not inevitable, but as J. P. Morgan said years ago, it is inevitable that markets will fluctuate.
What will people do with all this new wealth?
I think the fastest-growing business in the next 20 years will be the administration of private foundations. We'll soon have a dozen new foundations bigger than the Ford Foundation, bigger than Carnegie. It doesn't sound difficult to give away money intelligently, but it really is. The millions of new millionaires don't have that skill. And so, to do it right, there'll be this enormous industry created.
What will be an unexpected consequence of ultraprosperity?
One consequence is that there'll be a growing disparity between economics and politics. An economy that grows so rapidly is intractably global. On the other hand, the current political system is intractably national. So there is a growing dichotomy between a global economy and locally based politics. Half of Americans now own stock, which is an entirely new and extraordinary thing. This investor class is going to have an enormous effect on politics. Business bashing will become less and less popular as a way to get elected.
Do you think the Dow could get to 30,000 anytime soon?
Years ago, when I was working at a bank, we had a chief investment officer who would get up and plaintively predict that someday, not in his lifetime, the Dow would hit 3,000. None of us believed him.
What kind of effect would a 30K Dow have?
The wealth effect would be quite substantial. If you buy a stock for $10 and its market price goes to $20, you feel $10 richer, but you don't really have that cash until you sell it. Yet you'll buy more in the meantime. On credit, like all good Americans. If you multiply that effect by all the people who have become instant millionaires, you'll see what we are seeing now - a boom. They are buying more because they think they have more, even if most of their stock is locked up, and that means profits for retailers, which creates jobs and payroll, which in turn creates wealth.
Will today's boom reach the poor?
The standard statistical picture of wages does not contain a flowchart, but it should. Workers in the lower quartile of wages keep turning over and moving up into the middle quartile. With prosperity, there is more room to move up.
What are the dangers of ultraprosperity?
There is a generation growing up who think that markets only go up. There is a generation like mine, who grew up in the Depression, and who turn the lights out when they leave a room. If we have a prosperity boom for 10 years and the Dow reaches 30,000, we'll have a world where the lights burn very bright and there'll be no one left alive to remember to turn them off.
Will ultraprosperity increase leisure time?
No. But one of the things a prosperity boom will create is a huge pool of talented, experienced people who have retired and want to volunteer. A large percentage of successful executives get bored after they "retire" and play all the golf they can, so they dive into something like cleaning up the rain forest or mentoring young businesspeople.
What about you? Consider yourself retired?
I've reached statutory senility, so I am retired, but I go to work every day. In fact, I work for seven different companies. It's not really correct to call my type retired, since we often work as hard as before. But this force of older, don't-have-to-work workers is going to be a great and positive force in the new economy.
HARRY DENT JR.
In 1992, the year Bush lost the presidency to Clinton in large measure because of the stupid economy, Harry Dent Jr. published The Great Boom Ahead, a book that made many see Dent as more of a fool than a savant. The last seven years, however, have proven his detractors the foolish ones. Now, with The Roaring 2000s, he says the same forces he identified in The Great Boom Ahead will continue to drive the economy to even more fantastic heights.
Wired: Why the "Roaring 2000s"?
Dent: We will see very strong prosperity in the short term, similar to that of the Roaring Twenties. Back then, all types of new products - cars, radios, home appliances, phones - moved into the mainstream rapidly, just as the Internet and a lot of computer products are today.
So the stock market goes sky-high?
Yes, we see the stock market, the Dow, going to 35,000 or 40,000 in the next decade.
Everyone says it can't keep going up.
For the past 10 years I have been one of the most bullish forecasters about the future, and yet even I have underestimated the market.
What did you miss?
We did not really account for the international growth - we now have 5 billion new consumers to sell to. And historically, at about the middle part in a boom, you get a transition to higher valuation levels when people understand the boom is here to stay. The investment cycle kicks in and floods the market with money. That's where we are now.
What's driving this prosperity boom?
A massive baby-boom generation that within the next decade will move into their peak years of spending and productivity, which occurs in their mid-40s. They are in the power phase of their cycle, at which point they can actually change corporations and society.
How do you figure the Dow reaches as high as 40,000?
If we take just the average annual increase that the stock market has exhibited over a hundred years, it shows a channel, and cycles of valuation in that channel. We've made a number of log charts, and you can extrapolate this channel of growth pretty darn accurately. In fact, the curve is accelerating a bit, long-term.
Say the Dow hits 100,000 by 2010. Would that surprise you?
To get to a Dow of 100,000 in 10 years, the stock market would have to continue to grow at 28 percent, which is what stocks have been averaging in recent years. I do not expect stocks to keep on averaging 20 percent - as bullish as I am on everything else.
Would it trouble you if it did?
Yes, it would. That kind of growth in a short time would be a sign of excessive valuation. It is just too much.
How about over the very long term?
We did an extrapolation that said the Dow ought to be 250,000 to 400,000 at the middle of the next century.
Yet you are not utopian. You believe that this boom will end after a decade or so.
Bull markets end when a generation stops spending and stops being more productive as workers. Our growth boom will end around 2008 or 2009, as the boomer generation begins to cut its spending. We'll see falling prices, high unemployment, and massive consolidation in industry. This depressionary economy will last for about 12 to 14 years, from approximately 2009 to 2022. By 2022, if not before, the stock market will bottom out. Then it will turn up and grow strong again when another generation takes over.
In 2020, does the Dow slide back to where it is today?
That could happen. After stocks peaked in 1929, they lost 90 percent of their value and were still down about 70 percent in 1942 before the next generation drove the economy up.
Some economists talk about a shift from an economy with a "natural" level of 2 to 2½ percent annual growth to a high tech economy with sustainable periods at 4 or 5 percent. Do you buy this?
Technology, innovation, inflation, economic booms, and growth all follow population. So yes, because of the world population explosion and the power of information technology, we may average 4, maybe 5 percent growth.
You mention booms being related to population. Do you see wealth being related to generations?
It turns out that economic revolutions happen over a two-generation cycle. Research by myself and others shows that succeeding generations alternate in their personalities. In one part of the cycle, individualistic and entrepreneurial-type generations flourish, like the Henry Ford generation or the baby boomers. In between, you get these Bob Hope-like generations that are very civic minded, conformist, systematic. Instead of inventing planes, they put jet engines on them. Instead of inventing cars, they put superhighways under them. So, every other generation - about every 80 years, approximately - you get these revolutions. And at the end of the revolution, there is a depression-like phase.
If, as you suggest, prosperity is directly linked to population, then this could mean a very dark future for the planet beyond 50 years, when every forecast predicts a global population implosion.
That is right. But certain regions of the world can use immigration to keep growing. Others will be in trouble. Long-term, Europe is in real trouble demographically unless it attracts immigration.
W. MICHAEL COX
Not since Atlas Shrugged has there been as spirited a take on free enterprise as W. Michael Cox and Richard Alm's Myths of Rich & Poor: Why We're Better Off Than We Think. Cox, chief economist of the Federal Reserve Bank in Dallas, and Alm, a business reporter with the Dallas Morning News, contend that a permanent American underclass, stagnant wages, the need for double-income households, and the notion that young Americans can't hope to live as well as their parents are all pessimistic liberal hokum.
Wired: To what do you attribute our current prosperity?
Cox: The microprocessor. What's happening today is tantamount to what happened right after we got electricity. We're growing whole new industries - at least 25 technology spillovers from the microprocessor - and it's going to continue for two decades, perhaps four, as we learn what we can do with the microprocessor.
See any limits to this growth?
Our only restraining force is the labor force. All we need now is people to work in this economy. We need to relax the immigration laws, we need to let the old folks go back to work without a 40 percent to 90 percent tax over $15,500, we need to get people off the welfare rolls. We also need a more competitive provision of education so that competition, which works its marvels providing other products to the economy, works its marvels providing education for our labor force.
You talk about the rate of churn - new companies replacing old ones - as vital to economic growth. Has churn favored the US economy?
America seems willing to accept it more than Europe and Japan. The '90s were a very important decade for America because we had all this downsizing, and there was all this boy-crying-wolf stuff about how this is going to kill the country. But we seemed to have learned by letting it happen. One of the greatest lessons is that the secret to growth is losing jobs.
So the next time the economy stagnates, churn?
Right. To save the economy, cut jobs.
You argue that a two-income household is a choice, not a necessity. How so?
You have to make the distinction between the high cost of living and the cost of living high. If the two-income household says, "I'd like a nicer house than yesterday," they say, "Hey, here's our option: If you go to work you can have this bigger house, or you stay home and we accept the same levels as we had yesterday."
What was the most unlikely trend you found in your research?
It wasn't counterintuitive to me, but most people don't believe how much more leisure time we have today. Well, almost all the data supports the notion that we have a lot more free time than we used to, and a lot more recreation. The average work week is still declining. People have six to seven hours a week when they're at work but not working, compared to one hour back in 1965. We have 10 more holiday and vacation days than in 1970. The reason people feel they're so pushed for time when the data says otherwise is that the growth in the recreation and leisure industry has made you feel frustrated about not being able to go out and do all of these wonderful things.
ROBERT FRANK
Economist Robert Frank isn't sure ultraprosperity is good for our health. With more millionaires in the country than ever before, there seems no end to the $12,000 Patek Philippe watches, six-car garages, Gulfstreams, second and third ranch homes in Jackson Hole (for those seeking simplicity), and $600 bottles of Latour '85 going down casually as Cokes. While most reports first revel in the excess and then offhandedly raise the specter of what it means for the less well-off, Frank argues in his recent book Luxury Fever that upmarket hyperconsumption leaves even the wealthiest wanting.
Wired: What is "luxury fever"?
Frank: It's my term for the process that has produced such extraordinary growth in luxury spending in recent years. The boom began with increased spending by top earners, whose incomes and stock portfolios have been growing sharply since the 1970s. But it has now trickled all the way down the income ladder, affecting even those who can't easily afford to spend more.
For example, although the median-income family has no greater purchasing power now than in 1973, the average new house is now almost 50 percent larger than it was then.
I call the process a "fever" because it has much in common with a contagious illness. You catch luxury fever by simply being in the presence of others who spend more than you do, and there's persuasive evidence that the resulting financial stresses are actually making millions of Americans physically ill.
What about the "Millionaire Next Door"? Aren't a lot of rich people quite frugal?
Even the self-made rich, if they're thrifty by nature, are going to buy, too, if they spend time in the presence of those with bigger houses. The woman who reviewed my book in The Wall Street Journal castigated me for not knowing thrift was in among the people in the vanguard. She cited Amazon.com CEO Jeff Bezos as a really thrifty guy who didn't seem to have an inkling of how to spend his billions. A month before, in the very same newspaper, they had run an article on his purchase of a $10 million home. I suppose he is a thrifty guy, relatively speaking.
Has luxury fever happened before? The Gilded Age seems an obvious example.
It's similar in some ways. There were some people newly wealthy in the late 19th century, building some fantastic mansions and consuming in expressive ways, as you see now. I think what is really different is that the number of people who have money now is vastly greater than it was before.
Yet isn't income inequality also on the rise?
From 1947 through about 1973 incomes were growing at about 3 percent up and down the income ladder. Since then it's been all growth at the top. The top 1 percent of earners have captured about 70 percent of all earnings growth since the mid-'70s. That very different pattern of income growth explains why spending has gotten increasingly out of balance in the last 25 years.
Could luxury fever be merely a function of our impulse to attract a mate?
There's obviously something to that. If you're driving a certain car, you'll get a second look. I think we're just beginning to understand the brain mechanisms that guide that sort of thing.
Yet doesn't buying a Porsche have the advantage of supporting subsidiary industries?
The flaw in that argument is that it assumes that if we didn't spend money on Porsches, people would be sitting around idle. I don't want to knock Porsche. But if you think about spending on a luxury good as a way of employing people, then there are much better ways of employing people.
Isn't some waste natural?
The brain is a wonderfully wasteful organ. There are lots of things we do that are wasteful. But that doesn't mean we wouldn't be better off if we wasted less.
PROPHETS OF BOOM
George Gilder
Walter Wriston
Harry Dent Jr.
W. Michael Cox
Robert Frank
