by wasoxygen

Ever since 2000, American’s views on the economy have been heavily shaped by two ideas:

1. There was clearly a big tech stock bubble in 2000.

2. There was clearly a big house price bubble in 2006.

It’s possible that there was some sort of a bubble in each case. But as of today, there is no strong evidence for either proposition. It is not true that tech stocks were clearly overvalued in 2000, and it’s not true that house prices were clearly overvalued in 2006.

The tech bubble theory was based on the assumption that stock prices had gotten so high that they could only be justified in the tech industry went on to dominate the US economy, and at least some tech stocks would have to become massive successes, in order to offset the inevitable attrition of tech start-ups that did not do well.

Today, it seems like the optimistic forecasts were basically correct.

More Money Than Anyone Imagined

A quick explanation for why the tech bubble never burst

And what is there to burst? Some of the companies with those giant valuations have never turned a profit, most notably Uber. But many others have. It just took some time for them to grow and to monetize their user base, and thus to justify their valuations. Here’s how Esquire described LinkedIn back in 2011:

"It provides people you don’t like enough to take a telephone call from or even answer an e-mail from a way to get in touch with you when they’re at their most boring and desperate—i.e., when they need a job … [This] company whose profits of $15 million would seem the very apex of its very limited potential was able to go public in May at the high end of its IPO price. And then almost triple on its first day of trading before closing at double. Yes, a company with $15 million of profits was valued at $9 billion."

The company today has half a billion users, and makes gobs of money by selling information about them, as well as by selling advertisements. It has more than $1 billion in revenue a quarter, and is owned by Microsoft. Being a giant sponge for salable personal information makes for good business, it turns out.