Lessons from the Original Tech Bubble

Blue / Bloomberg / Getty Save this story Save this story Save this story Save this story You’re reading The Financial Page, John Cassidy’s weekly column on economics and politics.The boom-and-bust cycle has always been a feature of capitalism, and—capturing as it does the human traits of creativity, hope, greed, FOMO, anxiety, and panic—it always will be. Creativity gives rise to technological progress and transformative inventions, which provide a new driving force for the economy and a focal point for investors. Today, we are living through another speculative boom. This time the transformative invention is, of course, A.I., and last week’s SpaceX I.P.O. demonstrated its magnetic appeal, or perhaps the power of FOMO. While Elon Musk’s creation is an impressive rocket-and-satellite company, the stunning $1.78-trillion valuation of the I.P.O. was largely based on its ambitions to build A.I. data centers in space, which remain largely untested.

In all likelihood, the SpaceX stock offering will now be followed by ones from Anthropic, OpenAI, and other A.I. companies. Because the sums of money at stake are so enormous, and the rises in the stock prices of other corporations involved in the A.I. boom, such as the chipmakers Nvidia, Micron, and Arm, have been so vertiginous, people are understandably eager to look for any lessons that might be drawn from the bursting of the internet bubble, in 2000-01, and also the Great Crash of 1929 and the Great Financial Crisis of 2008-09. But in a timely and engaging new book, “1873: The Rothschilds, the First Great Depression, and the Making of the Modern World,” the economist Liaquat Ahamed makes the case for also looking back to the nineteenth century, when railroads were the disruptive technology. “Though often forgotten today, it is a tale that offers unsettling parallels to our current economic woes,” he writes.

Having become the world’s first trillionaire, at least on paper, thanks to the SpaceX I.P.O., Musk might well quibble with the word “woes,” but Ahamed’s historical comparison stands. The third quarter of the nineteenth century was a period in which global capitalism made great strides, eliciting a wave of optimism and risk-taking. The large-scale construction of rail networks, which had begun in Britain in the eighteen-thirties, spread to the U.S., continental Europe, and beyond, attracting entrepreneurs of varying levels of foresight and probity, as well as many retail investors who purchased the stocks and bonds that the railroads relied on, along with generous government grants, to finance their expansion.