IRRATIONAL EXUBERANCE -- SECOND EDITION

Many people ask me if we are on the brink of another bout of irrational exuberance. We all, of course, remember the last destructive bout -- the boom and bust of the telecoms, the dotcom lunacy and the dramatic NASDAQ meltdown of April 2000. The question everyone is asking is whether all this Web 2.0 hype is a return to irrational exuberance of the Nineties.

I think we are on the brink of more irrational exuberance -- but this bout is more dangerous because it is rooted in broad cultural forces rather than in the quantitative realities of the market economy.

In the Nineties, the irrational exuberance was rooted in economics and the stock market. I've just read the second edition of Robert Shiller's highly influential and persuasive Irrational Exuberance, and the book focuses exclusively on the dramatic bull markets in equities and real estate of the Nineties. Thus, in his concluding "A Call to Action" section, the Yale economist focuses on concrete economic measures to manage speculative volatility.

Today's incipient exuberance is quite different. It is driven by an infectious optimism about the cultural, political, economic and social consequences of technology. This exuberance is driven by the so-called "democratizing" consequences of digital technologies. It is an exuberance that overflows into an irrational faith in the globalizing political, cultural and economic implications of technology.

All periods of irrational exuberance have their inspirational texts, books which create the intellectual framework for the hysteria. Two books epitomize the exuberance of our digital era. The first is New York Times columnist Thomas Friedman's The World is Flat: A Brief History of the Twenty-First Century. The second is Wired magazine editor Chris Anderson's upcoming  The Long Tail: How the Future of Business is Selling Less of More. (due to be published in July by Hyperion).

Friedman's The World is Flat is global economic exuberance dressed up as objective journalism. Anderson's Long Tail (which I've already read and will review on publication) is cultural exuberance dressed up as sensible economic analysis. Both books treat the digital revolution as liberating the world from tradition and inertia. Both books seduce their readers with the "democratic" and, thus, beneficial consequences of the digital revolution.

The World is Flat is a best seller. The Long Tail will also be a big seller -- certainly the most seductive book about the digital revolution to be published this year. The popularity of both these texts, the resonance of their seductive message, suggest that we are on the brink of another bout of irrational exuberance.  These books are both causes and the consequences of the second edition of the digital revolution. They are irrationally exuberant manifestations of irrational exuberance.