It's been great to read all the millennium essays about Einstein and William the Conqueror and FDR. But if you're a crass person like me, the question in the back of your mind Friday night as you were trying to think bigger thoughts was: Where's this goofy stock market heading?
Will the tech boom continue, or is the helium balloon about to burst? Will the Nasdaq composite average have doubled again to 8,000 a year from now? Or will it have collapsed back to 2,000? And the horrible answer, which even the priciest champagne can't obscure, is: Nobody knows.
Some of the smartest people I know have been consistently wrong about this market. They measured it against traditional metrics of value--dividend payouts and price-earnings ratios--and concluded that by those measures, the hot stocks were overpriced. So they stayed away from what looked to them--even in 1995, with the Dow at 5,000 and the Nasdaq at 1,000--like an overheated market, and they missed the party.
The Wall Street Journal ran a box Friday morning that summarized the gains during the '90s for the market's highest fliers. It made for joyful or painful reading, depending on how much of these stocks you were bold enough to buy: Dell Computer, up 90,722 percent for the decade; Cisco Systems, up 68,624 percent; America Online, up 66,395 percent; Qualcomm, up 14,600 percent. On that list, Microsoft looks like a piker. It was up just 9,634 percent.
These numbers are crazy, yes. And the doomsayers will eventually be right--maybe next week, or next year, or 10 years from now. But no one can say when, because markets don't have any internal balance wheel. They're the sum of choices of individual investors and, in that respect, they're irrational.
One of my New Year's resolutions is to stop arguing with the market--stop scolding it for not performing the way smart people say it should. Tut-tutting the public's ravenous appetite for tech stocks is as silly as complaining about that the popularity of a mass-market movie like "Titanic" or a bestseller like "Tuesdays with Morrie." Highbrow critics can complain that these works are sentimental tripe, but the point is, people like them. And in my experience, when masses of Americans agree about something, they're generally right.
What's obvious, looking at the fantastic run-up in technology stocks, is that ordinary Americans realize that we're living in a time of revolutionary economic change. They see that the Internet is transforming our economy, brick by brick, and they want a piece of the action. Many of the investments people are making in this embrace of new technology will probably turn out to be bad ones, but the underlying impulse is absolutely correct.
Investors who want the stock market to move in steady, predictable ways are like the 19th century philosophers who wanted to see human history as a steady evolutionary process. But things don't work that way.
If there's one lesson that's clear from all the weighty essays published these past few weeks, it's that history is driven by sudden, unpredictable explosions of chance and creativity. Why did the Renaissance--a new way of seeing and painting and thinking--begin to emerge in 14th century Florence? Or, closer to home, why did new technologies for processing information begin to emerge in Silicon Valley labs during the 1980s and '90s? You can't predict these dramatic changes by extrapolating from the past. They're cataclysmic events, as unforeseeable as earthquakes.
Economics, too, like history, isn't an evolutionary story that can be described with the smooth upward curves of continuous algebraic functions. It's a story of radical discontinuities--the sudden sparks of innovation, optimism and panic that drive people and markets. The philosopher T. S. Kuhn liked to distinguish between "normal science," the steady problem-solving kind that chugs along in ordinary times, and the "revolutionary science" of people like Copernicus, Galileo, Newton, Lavoisier and Einstein--who made radical breaks with the existing paradigms of knowledge.
My gut tells me that we're in such a period of radical change --one that doesn't fit the smooth formulas and functions of ordinary times. A new economy is being born, and the stock market--even with its crazy valuations, even with our certainty that the bubble will burst--is an accurate reflection of that fact.
"Don't fight the problem, decide it," Gen. George C. Marshall observed more than a half-century ago, and it's a useful admonition today. Don't argue with the facts, learn from them. Something new and different is happening in the American economy. We'll return to ordinary times and the slow buildout of knowledge soon enough. But right now, we're in the eye of a hurricane. That's what this goofy stock market is telling us today, but don't ask me where it will be tomorrow.