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View all search resultsThe ‘new economy’: 20 years after the dotcom crash
Applied and utilized properly, the positive driving forces of the new economy will help and support economic recovery around the world and specifically in our beloved country.
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T
he dotcom revolution of the 1990s – also commonly and more generally referred to as the “new economy” – was dead! That was the theme song of many editorials at the turn of the century 20 years ago.
It is understandable because many of the promises of the dotcom revolution – or bubble in 1999-2000 – did not materialize at the time. Almost every day between 2000 and 2002, we heard figuratively the popular song “Another one bites the dust” or “Something stupid”.
In Indonesia, Astaga!com – the symbol of the go-go dotcom pioneer – and its successor Mweb Indonesia faced a very tough and rough reality. In retrospect, the failure of Astaga!com and similar companies at that time in Indonesia is understandable. At that time, 1999, the total number of internet users and mobile phone connections in Indonesia was still small, at around 1 million. Moreover, online transactions were also not common.
Even worse, the prices of the shares of the dotcoms in stock markets all over the world simply crashed. It seemed that the prophecy of Daniel Kahneman and Richard Thaler – the 2002 and 2017 Nobel laureates in economic science – about the “irrationality” of human decision-making received very strong confirmation from the stock markets. This could be seen from the irrational exuberance (to borrow Allen Greenspan’s famous terminology) and irrational pessimism reflected by the extreme roller coaster of the NASDAQ Composite Index (NCI).
The rise of the NCI during the second half of the 1990s was widely regarded as the symbol of the success of the dotcom revolution. At the peak of the dotcom boom, the NCI rose in March 2000 to above the 5000 level. However, at the nadir point of the bust period, the NCI fell to as low as 1000 in October 2002. The percentage of the decrease of the NCI (about 70 to 80 percent) was worse than that of the Jakarta/Indonesia Stock Exchange Composite Index (IHSG) in 1998 and 2008 – which was only about 50 to 60 percent.
This severe blow to investors caused a widespread perception that the dotcom revolution of the new economy was dead. But was it true that the new economy was dead? The answer is a big NO!
We need to separate the prices in the stock market (or the market indices) from the real economy. The movement of stock prices is mostly determined by the supply and demand of the stocks. Supply and demand are determined by the general perception of investors regarding the fundamentals of the companies.
