New Economy Myths

"Technology firms lay off tens of thousands." "Wall Street recruiting drops off this year." "Inflation up, NASDAQ tumbles."

Anyone who's been reading the papers or watching the news in the last few months knows that, economically speaking, there's something rotten in the state of Denmark. Pundits who once breathlessly exhorted the virtues of the New Economy now sound the alarm. "Danger ahead," they say. Some Really Smart People, like Alan Greenspan, have even begun cautiously dusting off that dreaded R-word from the early '90s: recession.

The hype is only half right. Though we have no definite statistics yet, we know that growth has slowed from the white-hot rate of 5 percent to the more prosaic but healthy 1-3 percent. On that basis, the financial media--out of boredom more than anything else--has started wondering if the world is about to end, and whether it will be by fire or ice. The conclusion: either will suffice.

However, the reality is far from the collective hysteria that's been blaring from the pages of USA Today and The New York Times. Indeed, there are several popular myths that we need to dispel about the current economic situation.

Myth number one: Now is not a good time to invest. We're not in a recession, but if everyone is acting as if we are, that opens up great opportunities in the stockmarket. With the NASDAQ trading at just over 2000 right now, bargains abound. In fact, buying growth stocks at the bottom of an economic cycle is one of the best time-tested methods for beating the market. The legendary investor Warren Buffett, speaking to Fortune magazine during the deep recession of 1974, told stunned interviewers that he was buying every solid company in sight. "I feel like an oversexed guy in a whorehouse," he told them.

Well, Buffett was proven right to the tune of billions of dollars. Even if you've got just a few hundred dollars to invest, now is by all means the time to emulate him. Whether you want to buy individual stocks or park your money in a mutual fund, so much of the stock market (especially technology companies) has been beaten down so much that there's only upside left, at least in the long term. When the market overreacts by punishing great companies like Cisco or Yahoo as much as it has hurt companies that should never have existed (like online pet supply stores with asinine mascots), then you know that now is the best time to buy.

Myth number two: In today's market you'll never get a job. Of more immediate and widespread concern to a cohort of 21-year-olds is the state of the job market. Anyone going through recruiting has probably noticed that hiring is a little slower this year than in years past, and one of course can't help notice that many companies from all different industries and regions are laying off employees. The thing is, a dot-com firing 200 employees, an auto maker closing one plant and a newly-merged company like AOL Time Warner eliminating 1,200 redundant accountants and secretaries does not add up to a job market like that of the early '90s, when millions of jobs were lost every year. As it stands, the economy is currently adding 150,000 jobs a month, which is a slower pace than in years past but certainly not something to get everyone worried about bread lines. Any Harvard student going into the job market in the next few years will do fine, thanks to the power of our alma mater. After all, there's always room at the top.

Myth number three: The New Economy was all a sham, a Ponzi scheme designed to dupe the average American. This myth is a little bit more complex. Some pundits, so naive they should never have been given a bully pulpit, have pointed to the recent slowdown as proof that the New Economy was a ruse. They point to the equally naive proponents of all the New Economy hype who promised an end to the business cycle, growth and prosperity forever and a stock market that never went down.

What we have here is a case of the foolish criticizing the blind. The Internet was never going to make the business cycle go away, and anyone who believed so deserved to lose all the money they had plowed into shares of hopeless dot-coms. And now that we are in an ever-so-slight downturn in the business cycle, those who say the Internet was all hype have obviously never used eBay or experienced one of the myriad forms of collaboration and communication that weren't possible even five years ago without the Internet.

When it comes to reading about the economy and your money, it pays not to believe the hype that you read in the press. Everyone has their own interest in mind, and the same person who's trashing tech stocks on CNBC has probably shorted the NASDAQ behind the scenes. What we have now is a small correction, and anyone who says otherwise either knows more than Alan Greenspan--who remains cautiously optimistic-- or has got a horse to sell you.

Alex F. Rubalcava '02 is a government concentrator in Eliot House. His column appears on alternate Mondays.