The title has the wrong year. It should be 2005. The quote was: "By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's."
The way in which Krugman was wrong is actually more subtle than it seems. He critiques Metcalfe's Law as the reason why it won't be impactful, not the raw processing power or bandwidth: "most people don't have anything to say to each other".
And you can certainly look at the average comment thread and think, "wow, most people don't have anything to say to each other." The benefit of wider access wasn't realized so directly. But by 2005 what had happened instead was the start of aggregation-as-a-service. Instead of wandering around different people's web sites at random or reading the Usenet firehose, you could read Slashdot, Digg, your RSS feed, your Livejournal, etc. All of these added ways of curating, either through the site's proprietary algorithm, or by simply acting as a slightly smarter bookmark that could track posts-over-time.
That allowed signal-to-noise to increase, which realized a lot of the benefits we take for granted now, but also created the ethical perils of how to do good curation and not get stuck in a spiral of negative engagement.
The prize still isn't in the raw data capacity, but how to get our minds onto the information most useful and relevant to our lives.
"The seductive chaos of the Internet today offers hints at why these agents to come will be so important. Like Alice’s Restaurant, you can get anything you want — but unless you have software help, you might never find what you are looking for."
"It is this avalanche of content that will make context the scarce resource. Consumers will pay serious money for anything that helps them sift and sort and gather the pearls that satisfy their fickle media hungers. The future belongs to neither the conduit or content players, but those who control the filtering, searching and sense-making tools we will rely on to navigate through the banal expanses of cyberspace."
As Joe Weisenthal (co-host of Odd Lots podcast) wrote last year, Krugman wasn't was wrong as most people seem to think:
> So the first part of Krugman’s prediction was obviously, completely, unequivocally wrong. It turns out that people have a lot to say to each other. More than we ever thought. A total zero on that one. Points to the dunkers.
> The more interesting half of the quote though — and the one that the critics mostly remember — is the second part about the impact on the economy being no greater than the fax machine. This one is completely defensible.
> As Skanda Amarnath, head of research at Employ America, wrote to me, what people see as a major economic impact is really the social impact. From a true data impact, Krugman wasn’t wrong. “Productivity growth has been substantially weaker during the age of the internet,” Amarnath wrote. “The same deceleration is visible in terms of both nominal and real investment in software and even the broadest definition of hardware (information processing equipment). There has been some shifting and cannibalization of activity as a result of retail moving to e-commerce channels, and new media dominating advertising services at the expense of old media, but if we’re talking about macro impact beyond substitution, the burden of proof is with those eager to mock Krugman on this point.”
> I must have tossed it off quickly (at the time I was mainly focused on the Asian financial crisis!), then later conflated it in my memory with the NYT piece. Anyway, I was clearly trying to be provocative, and got it wrong, which happens to all of us sometimes.
It's been over twenty years since Krugman wrote that article: people need to get over it. It was a throw away article for a now-defunct B-list publication.
People seem to like to dunk on Krugman for this 1998 pop-econ article, but don't bother looking at his academic work. For example this was also published in 1998:
And here's something else that he published in 1998:
> THE LIQUIDITY TRAP-that awkward condition in which monetary policy
loses its grip because the nominal interest rate is essentially zero, in
which the quantity of money becomes irrelevant because money and
bonds are essentially perfect substitutes-played a central role in the
early years of macroeconomics as a discipline. […]
Which kind of has become important over the last few decades as Japan, and now many other countries (especially post-GFC), have to deal with luke warm growth:
Coincidentally, back in 1996 I had an economics professor that expressed this exact sentiment during a lecture. He was convinced the internet was a fad that would be gone in a few years.
I found it really puzzling that someone so educated who seemed more familiar with technology than the average person couldn't see - or more accurately feel - the impact the internet was going to have. The second I went online and tried a random chat website, I knew that what I was witnessing was rudimentary but would become revolutionary, and most people around me felt the same.
Then you don't understand modern (last 50y) academia. It rewards gatekeeping, turf-guarding, outsider exclusion, shunning changes and bible thumping. Its the reason that there have not really been any revolutionary advancements in a long time. Everyone is hyper focused on guarding their own expertise and writing papers to "prove" it. Even if it is not necessary and most of the time no one except a reviewer will ever read the XXXXth paper on a slightly different version of a topic that has been covered a million times. The work is as immaculate as it is pointless.
The econonic impact of the internet (aside from how many "industries it trasnformed" and so on) is the mere continuation of the earlier GDP trends.
And if we go back, we see that the real turning point (with which the internet era change can't even compete) was the steam/oil/industrial revolution combo circa 19th century:
When it comes to people and papers published, yes. But There's not much "acceleration of scientific inquiry" as it pertains to results. If anything it's a slowdown after the 60s-70s, an acceleration in BS papers and incremental updates, but lack of real big discoveries.
Consider discoveries like: steam engine, combustion engine, jet engine, electricity, "the germ theory of disease", vaccines, surgery, x-rays, laser, nuclear power, airplane, car, air conditioning, fridge, digital computer, reinforced concrete, spectometer, synthesizer, transistors, DNA, etc.
Including of course the digital computer, the personal computer, the OS, the command line, the UI, the mouse, the internet, Lisp and Smalltalk.
I think education does not have much to do with it.
Rather, it's creativity and curiosity.
Sci-fi authors could have imagined much more.
People who think "it's just a fad" can't think much beyond what it's being shown there and see what's really going on behind and how this can grow.
In a way, they were not criticizing "the internet". They were criticizing mIRC, or some site best viewed with Netscape 1.0 and thinking that's where it ended. But of course that's where it begins
They did - Hitchhiker's Guide to the Galaxy is basically Wikipedia on a tablet. Well, except that the authors are volunteers, the device can do a lot more, and it doesn't have the calming words on its cover.
> The second I went online and tried a random chat website, I knew that what I was witnessing was rudimentary but would become revolutionary
By witnessing a chat website you immediately grasped that the internet (web) is something dynamic, not static.
The economics professor probably had a different perception of the internet at that time, thinking web pages were static documents (in a way similiar to a fax).
In some ways, this is the curse of early adoption. It's often the case with emerging technology that the use-cases for it start off as slightly more efficient ways of doing things. It can be hard to see past those use cases, especially when you work in a different field.
Said professor probably saw the internet has more of a fancy distributed library system. Without working with the underlying technology, it can be hard to see how something will flesh out.
Early iterations of tech often sucks. It's easy to dismiss technology that barely works as unlikely to overcome the major hurdles it is encountering. Think: self-driving cars.
The question that spring to mind is, when do you know if an information technology is more like the telephone or more like the fax. Also is there some clear consensus on the impact of the telephone had on the economy ?
It always seemed crazy to me, but as far as I'm aware the invention of computers didn't seem to have a noticeable effect on their economic measures of productivity.
I can imagine that he reversed his opinion as the dotcom bubble inflated until about 2000, only to reverse it again after the bubble popped, only to reverse it again...
A successful businessman, visiting his alma mater, dropped in on the economics professor.
Recalling that he used to have trouble with economics exams, he asked to see some of the current papers. Noting them casually, he observed, “These are the same old questions!”
“Yes,” agreed the prof, “we never change the questions.”
“But,” objected the visitor, “don’t you know the students will pass the questions on from class to class?”
“Certainly,” was the bland response. “But in economics we are constantly changing the answers.”
My professor in 1998 was saying that whatever we had then was the last technological advancement of chip production because it was not possible to make elements smaller due to the length of light waves, and CPUs are not going to get faster. 25 years later...
Your professor was 100% correct: chips haven't been getting faster, though, and for precisely the reasons they stated.
However, parallelizing work onto separate cores turned out to continue to extend performance, so it didn't matter so much.
That said, I feel like there were many things that were faster 25 years ago than now, so even multicore hyper-threaded CPU improvements are being chewed up by software doing more. Still, that's a separate issue.
I had to dig out an old Pentium 4 Dell machine this weekend to work with some old hardware. 1 DIMM and a SCSI card had died in the 12 years it was powered off, but it worked just fine with 256MB of memory. Mostly as responsive as a modern machine, but you could tell when the 20 year old spinning drive had to chug a bit to load things. And I seem to still be able to navigate WinXP with no issues - no weather or ad widgets loading under my mouse cursor; it was actually a breath of fresh air. I'm not sure if that's nostalgia/familiarity or if it was really more useable.
I've also heard non tech people complain about how clear it is that each Windows version is just a shabby coat of paint over the last version and they wish Microsoft would just stop, so I don't think it's just me.
I have to imagine XP would fly on a current machine with multiple gigs of RAM and an SSD.
Excerpts from “Silicon Snake Oil” by Dr. Clifford Stoll, Ph.D. Physics
———-
I don’t believe that phone books, newspapers, magazines, or corner video stores will disappear as computer networks spread. Nor do I think that my telephone will merge with my computer, to become some sort of information appliance.”
“I suspect Big Brother won’t have an easy time tracing us. … Our privacy will be protected, as it always has been, by simple obscurity and the high cost of uncovering information about us.”
“What will the electronic book look like? Some sort of miniature laptop computer, I’d guess. We’ll download selections and page through them electronically. Try reading electronic books. They’re awful.”
“When high-bandwidth links allow every home to access animated, talking, holographic computerized encyclopedias, I can’t help thinking that kids still won’t use ’em.”
“Video-on-demand, that killer application of communications, will remain a dream.”
“It’s easy to make fancy home pages on the World Wide Web. But jumping from one document to another baffles me even more than watching someone channel surf. I’m never certain of my location in a twisty maze of cross-references.”
“Why not send a fax? It’s far more universal than e-mail — we not only find fax machines everywhere, but they can all speak to one another. … I find it easier [than e-mail] to just scribble a note on a plain piece of paper and send it over a fax. Or address an envelope, lick a stamp, and mail the letter
Cliff Stoll has to be the most lovable crank of the modern day. I actually feel like he was overall correct about the societal implications of technology while being amazingly wrong on almost every detail. And he's far from a fool - he famously developed quite a lot of network security/intrusion detection ability back in the 80's when it was first getting going.
And some of his criticisms of the details were right but we just decided to accept the problems. For example, he thought e-commerce wouldn't take off because hackers would just steal the credit card info from e-retailers. They do, but people have just accepted that every few years they'll have their credit card info compromised and have to go through an ordeal of cancelling the card and getting a new one.
>When high-bandwidth links allow every home to access animated, talking, holographic computerized encyclopedias, I can’t help thinking that kids still won’t use ’em.
He got that one 100%... Kids still wont touch educational content with a 10-ft pole, much less encyclopedias - unless (a) forced by parents, (b) they belong to the statistically small subset of nerds (I'm one, not meant offensively).
Ah, Paul Krugman, the guy who said "the fed needs to create a housing bubble to replace the Nasdaq bubble" in 2002. Nobody else short of Joel Osmond has made such a career of being spectacularly wrong.
I'm confused. I went and looked at the editorial by Paul Krugman. Here's the quote: "To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."
Isn't that exactly what happened? And in 2008 the housing bubble collapsed? Or maybe you have a different story about that bit of history.
Yes, that's exactly what happened. He wasn't wrong because people didn't listen to him; he was wrong because his advice is idiotic and listening to him and people like him ruined thousands of lives.
Krugman has always struck me as a small-minded hack, but that’s my opinion and not based off of any objective measurement of his abilities or whatever-just his writing and insufferable, pompous commentary.
It's interesting to me the level of unadulterated hate Krugman gets. I'm not any kind of avid reader of public intellectual economics so have no long-term basis from my past experiences reading him to have an opinion one way or another, but just looking at this single set of predictions, he still seems to have been right as often as wrong:
- Internet won't have a long run impact on economy - NOPE
- IT job growth will slow drastically - NOPE
- US triumphalism will vanish within a few years of 1998 - YEP
- Inflation will go up in 1999 - YEP, but didn't quite hit 3%
- Productivity growth will slow in 1998 - YEP (not a long-run trend, but he was right about 1998)
- Some time in the next 20 years, we'll see another 70s-style supply crunch - NOPE, but pretty close, since it is happening right now; he just missed by a few years
It's especially interesting in that the entire column seems to be a general poo-pooing of economic optimism and expression of his skepticism that anything happening in the 90s will fundamentally change the way the business cycle works. That seems generally in line with the predominant Hacker News zeitgeist - be skeptical of everything, don't buy hype cycles, the future will probably mostly end up being similar to the past. Every now and again, you spectacularly miss some legitimate sea change, but most hype cycles do end up receding.
Internet consistently failed to fulfil its biggest promises, such as:
- End to autocracies and government corruptions as citizens organize in unstoppable ways
- Nationalism and cultural conflicts fading away as everyone makes friends around the world and gains mutual understanding
- Poor people picking up free education on Internet and entering Middle Class
- Free trade among ordinary individuals without intermediaries
Instead sucky governments and mega corporations seem to have gained even more power against ordinary individuals through centralized control of various endpoints (so much for "keeps working in nuclear war" mesh vision) and individuals ignored the wealth of free knowledge available to engage in escapism and bias confirmation.
So I would argue that "for the people" Internet ended up meaning little for society, as opposed to advanced in computing in general and information technology in service of corporations, that did bring about huge economic and practical gains. For example, today's cars are tremendously more safe and efficient compared to what was possible with purely mechanical components. But that is not "Internet" per se.
I think the difference from fax was that the machines sending electronically increased in scope and storage whereas fax didn’t advance much in the eyes of the user. No one could have predicted computers would be so small nor so light on power usage for their relative processing power. If we were still using c64’s the I could see a relative argument, but by 1998 we had vga/saga and cdroms in mainstream use
> No one could have predicted computers would be so small nor so light on power usage for their relative processing power.
He’s predicting the future but assured that technical progress won’t occur in an 8 year timeframe, after watching us go from mainframes to PCs over the previous 30 years.
This is a case of abject stupidity on the part of Krugman.
I’m not defending Krugman, but in my own defense, no one would have predicted flat screens computers and 4lbs laptops would be available to the general public much less for so cheap. If prices remained steady from 1998, were talking about a computer that costs roughly 2k and there is no online banking. Municipal taxes and courts are also mostly not online as well, but they tend to have fax numbers. Day to day budgeting and bill paying was not online except for larger businesses who also set up meetings and emailed spreadsheets to handle expenses
I’m not trying to be dense here, but exactly all of that was predicted. What about the environment in 1998 caused you to believe that we would stagnate?
Just 3 years later, online banking was ubiquitous in 2001 - such that I stood at a conference for retail banking and personally pitched dozens of banking executives on frameworks and white label software they could use to build their own. Meaning that it wasn’t just one-off banks who were doing it, and surely some were doing this in 1998 as well.
Cable modems were becoming common. ADSL was next best thing.
1998 was a year things really exploded. It was part of the tech bubble upswing. I’m confused what would cause someone to think that was the end of history.
I never said it was the end of history. I was just remarking on non portable, multi thousand dollar devices needed from the consumer side. But you are right, it was a bubble.
> This is a case of abject stupidity on the part of Krugman.
He mad a specific statement:
> By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's.
Which if you look at the numbers, isn't really wrong:
> As Skanda Amarnath, head of research at Employ America, wrote to me, what people see as a major economic impact is really the social impact. From a true data impact, Krugman wasn’t wrong. “Productivity growth has been substantially weaker during the age of the internet,” Amarnath wrote. “The same deceleration is visible in terms of both nominal and real investment in software and even the broadest definition of hardware (information processing equipment). There has been some shifting and cannibalization of activity as a result of retail moving to e-commerce channels, and new media dominating advertising services at the expense of old media, but if we’re talking about macro impact beyond substitution, the burden of proof is with those eager to mock Krugman on this point.”
> […] -becomes apparent: most people have nothing to say to each other!
As Krugman himself stated a few years ago:
> I must have tossed it off quickly (at the time I was mainly focused on the Asian financial crisis!), then later conflated it in my memory with the NYT piece. Anyway, I was clearly trying to be provocative, and got it wrong, which happens to all of us sometimes.
"The practical misconception here — and it’s a big one — is the notion that we live in an era of wildly irresponsible money printing, with runaway inflation just around the corner. It’s true that the Federal Reserve and other central banks have greatly expanded their balance sheets — but they’ve done that explicitly as a temporary measure in response to economic crisis."
That temporary measure turned out to be not so temporary! And in fact it was only about to accelerate dramatically. And it turns out inflation is still a concern worth taking seriously.
I'm not a Bitcoin person, but even after Bitcoin's current crash, if you had done the opposite of what Krugman suggested in 2013 and bought Bitcoin, your investment would be up well over 20,000%.
And then COVID hit. They're reducing assets now (quantitative tightening). Odd Lots had a recent episode on this, "What the Fed's Big Balance Sheet Unwind Means for Markets":
> Sometime in the next 20 years, maybe sooner, there will be another '70s-style raw-material crunch: a disruption of oil supplies, a sharp run-up in agricultural prices, or both. And suddenly people will remember that we are still living in the material world and that natural resources matter.
It's pretty clear that economists are really only good at predicting the past. Although with this particular prediction, Krugman may not have been that wrong, since the fax machine had a huge economic impact in Asia in that timeframe.
Or in the United States as well.. Nearly all offices in the US in the 1990s (and even into the 2000s) had a fax machine to send documents back and forth, especially ones that needed to be signed. Until fairly recently you could still run into people who didn't trust emails with scanned PDFs (or those newfangled "digital signatures" on PDFs) and would want faxes even after the time when fax machines became rare.
Sometimes I wish I could go back in time and have a discussion with people who try to predict the future. And then "predict" what we actually have today. Describing how we get to laptops that are actually portable and have good battery runtime. Shrinking it even more to make it a smartphone. The internet getting infinitely faster, and coming over the air. And then finally arriving at TikTok and sharing dick pics via WhatsApp because that's just what the average Joe who doesn't live in the academic bubble is into. The reaction to that has to be priceless.
In 2001: A Space Odyssey (filmed in 1968), they had tablet computers with video communication and sentient AI, all courtesy of IBM. Moore's Law was first coined in 1965. I don't think the tech itself would be all that shocking to those in the know, but you may be right about the societal reactions.
> most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's.
How much experience did Krugman have with the fax machine? My dad always used to tell me stories of secretaries "texting" each other all day long.
I don't see any underestimation of the fax in the piece. I think commenters here are dramatically underestimating the fax, to the point that I'm not entirely sure Krugman was as wrong as he seems to be.
I mean, from an economic or productivity perspective, it's not clear to me that the internet does mean more than the fax machine did, especially by the 2005 deadline. The fax machine was world-changing.
> The growth of the Internet will slow drastically, as the flaw in "Metcalfe's law"--which states that the number of potential connections in a network is proportional to the square of the number of participants--becomes apparent: most people have nothing to say to each other!
It's not that he was wrong, per se, he just appears to have underestimated the human appetite for saying meaningless things to nobody in particular. :P
Or misjudged that it's not only about human-to-human communication, but computer-to-computer. We have a lot of industrial systems from inventory to production talking to other systems, connections that previously just did not exist. Downside is all the foreign government hackers in each others various networks from energy to healthcare to industry.
I would like to see numbers, but I would expect human discussions to be dwarfed by "computer talk" (excluding streaming media, even if I really like cat videos I don't think they should be counted here).
The actual article title is "Why most economists' predictions are wrong", not "By 1995, it'll be evident that the Internet means as little as fax" as submitted.
This article misses the point completely. Fundamentally the question is, if some technology has made us twice as productive, why don't we work half as much? This will never happen because capitalism and economics are completely psychological. You could look at any period of history and see some invention that caused a 2x increase in productivity. Inventions like farminng, the electric or gas powered motor, etc. Humans will always fill the void left by their extra productivity with more work.
We have the technology _today_ for the average work week to be about 5 hours we just choose not to do this as a society.
I think predictions of leisure time underestimate the power of those holding the capital.
In the past, there was a leisure class, and we certainly have the productivity to have one again, but instead we have billionaires and continue to work 40 hours a week.
> I must have tossed it off quickly (at the time I was mainly focused on the Asian financial crisis!), then later conflated it in my memory with the NYT piece. Anyway, I was clearly trying to be provocative, and got it wrong, which happens to all of us sometimes.
And here's something else that he published in 1998:
> THE LIQUIDITY TRAP-that awkward condition in which monetary policy
loses its grip because the nominal interest rate is essentially zero, in
which the quantity of money becomes irrelevant because money and
bonds are essentially perfect substitutes-played a central role in the
early years of macroeconomics as a discipline. […]
But as Joe Weisenthal (co-host of Odd Lots podcast) wrote last year, Krugman wasn't was wrong as most people seem to think:
> So the first part of Krugman’s prediction was obviously, completely, unequivocally wrong. It turns out that people have a lot to say to each other. More than we ever thought. A total zero on that one. Points to the dunkers.
> The more interesting half of the quote though — and the one that the critics mostly remember — is the second part about the impact on the economy being no greater than the fax machine. This one is completely defensible.
> As Skanda Amarnath, head of research at Employ America, wrote to me, what people see as a major economic impact is really the social impact. From a true data impact, Krugman wasn’t wrong. “Productivity growth has been substantially weaker during the age of the internet,” Amarnath wrote. “The same deceleration is visible in terms of both nominal and real investment in software and even the broadest definition of hardware (information processing equipment). There has been some shifting and cannibalization of activity as a result of retail moving to e-commerce channels, and new media dominating advertising services at the expense of old media, but if we’re talking about macro impact beyond substitution, the burden of proof is with those eager to mock Krugman on this point.”
