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Published: November 30, 2004


Best Business Books 2004: The Bubble

The final chapters in the author's saga of greed and corruption remain to be written. Although some of the executives involved in the stock market bubble have been convicted of serious crimes, what may be the climax of the entire episode -- the trial of Enron Chairman Kenneth Lay and his top lieutenants for their part in the collapse of the former energy-trading company (and for the billions of dollars lost by employees who were encouraged to hold on to their stock) -- won't even begin until 2005.

If nothing else, Lowenstein's book gives you an appreciation for the Sarbanes-Oxley Act and other regulatory reforms. Most executives of U.S. companies agree that some of these reforms were necessary, but there are also critics who consider them to be overkill. Reading Origins of the Crash, it's hard not to agree that the reformers have the stronger case. (See "Governance.").

In Rational Exuberance, Michael Mandel takes a different and substantially more positive approach to analyzing the bubble and its aftermath. Business Week's Mandel is passionate about the importance of what he calls exuberant economic growth. He makes the case that exuberant growth goes hand in hand with the creation of life-changing technologies like the Internet, even if it also breeds some self-defeating excesses.

During the mid-1990s, Mandel began to write about the "New Economy," describing the positive impact of technology and aggressive financial markets. He was not talking about a new economy in which profitability was an afterthought, but rather an economy that could expand and create both jobs and wealth as a result of innovation. Mandel predicted the Internet bubble in his book The Coming Internet Depression (Basic Books, 2000). But the warning he is issuing today should be heeded: Without exuberant, technology-driven growth, the economies of the world will not be able to support the social programs that are needed by their populations.

Mandel systematically builds the case for how technology innovation leads to economic growth and improved standards of living, and how it has the potential to continue to do so. He explores many examples of this potential in the communications, manufacturing, health-care, energy, and transportation sectors. For example, he notes that exploration and exploitation of outer space, already a multibillion-dollar industry, has the potential to be enormous. In all these sectors, he relates, breakthrough ideas are already being worked on that could ultimately employ millions of people.

Mandel worries that America may not be able to maintain its long tradition of technological leadership; the number of graduate students produced by American universities has been declining, he notes, especially in science and engineering. He urges that funding for graduate studies be increased, but writes that new funding, instead of being tied to particular fields of study or specific research grants to faculty members, as is often the case today, should be allocated in a more flexible manner to encourage broad exploration to seek out the next big thing.

Just as Rational Exuberance builds the case for technology-based innovation, it also makes an articulate case against the many "enemies" of growth. Some research economists have consistently argued against rapid innovation and growth, with some arguing that these lead to federal deficits. Many political leaders of both parties have been unenthusiastic supporters of investment for technology innovation. More than a few have blamed technology for many of the world's problems, including job dislocations resulting from automation, invasions of privacy and Internet spam, and -- more generally -- for disruptions of the status quo. For many of these antigrowth advocates, the boom and bust of the Internet bubble is a convenient argument for why we should be loath to invest in technology.

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