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The New York Times has a piece on the “new economy,” in which it states:

“After the collapse of the dot-com bubble, a steady retreat in technology stocks this year and an old-fashioned recession surely under way, the new economy theory requires some revision, to put it kindly. Its biggest problem came first—the word new. Almost nothing about the rise of the Internet in the 1990’s was really new.”

The article outlines the rise and fall of the Internet, saying that it promised to use technology to increase productivity and concludes that there is nothing new about this claim; thus, there is nothing “new” about the economy. The piece ends by saying:

“So the new economy was not so new after all. But the technology still matters—as it always has.”

I disagree. The new economy is alive and well, and what has fallen over the past year and a half was a lot of cloning that piggybacked onto the real new economy and suckered in thousands of investors and investment companies who felt they had missed the first wave.

What creates a new economy? Only one thing: new wealth, not new technology. The strict definition of new wealth is the creation of something from natural resources that did not previously exist—it’s one reason why the commodity markets are sometimes called the last bastions of new wealth. The stock market is rarely new wealth in the same way. New wealth is created when, for example, a farmer grows a crop. The farmer is not recycling last year’s crop; the farmer will make money afresh on this year’s crop. The crop will generate new income. When Kellogg Company (K) buys the farmer’s corn, it does not generate new wealth because they are using the corn to continue producing an existing product, let’s say, Kellogg’s Corn Flakes. In technology, when Microsoft (MSFT) created its first operating system in DOS, it created new wealth: the intellectual property that created the operating system was something new; it did not exist before Bill Gates and Paul Allen created the program. Every other system that Microsoft has produced since then, however, is not new wealth because the technology is predicated on and uses the building blocks of the original DOS operating system.

When one ties the new economy strictly to intellectual property, which is the creation of technology that did not previously exist, then it is possible to see that like all new industries, one has to separate the wheat from the chaff. The automobile industry had hundreds of failures before a handful of companies became the industry leaders and standardized manufacturing processes. It shouldn’t surprise anyone that with technology as far-reaching as the Internet, there will be thousands of ideas and companies that fall by the wayside as the technology refines itself through its evolution.

For investors who are interested in the long-term growth of technology as it pertains to the Internet, I recommend taking the exact opposite viewpoint of the Times in this matter. Look beyond the technology to the intellectual property. That’s where the new wealth of the future can be found.


Shelley Souza
Senior Writer & Trading Strategist
Optionetics.com ~ Your Options Education Site
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