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The Causes and Consequences of the Internet Bubble

In: The Post ‘Great Recession’ US Economy

Author

Listed:
  • Philip Arestis
  • Elias Karakitsos

Abstract

On 26 November 2001 the National Bureau of Economic Research declared that the US economy’s recession had begun in March 2001. The expansion had lasted for ten years and was one of the longest ever recorded by any industrialised country. In the fourth quarter of 1999 the US growth rate reached 7 percent, the highest in the 1990s. Unemployment fell to a 30-year low (3.9 percent by April 2000), the rate of inflation was low (averaged 2.5 percent throughout the whole of 1990s), faster growth in productivity was recorded, and faster growth in real wages. All these factors helped to reduce poverty and stabilise wage inequality (Temple, 2002). Subsequent data (see Council of Economic Advisors, 2004, Table A33), though, reveal that this is true only for the years 1998–2001. The stock market also produced massive gains, so that by the late 1990s the price/earnings ratios reached record levels for the whole of the twentieth century. Every year between 1995 and 1999 the US stock exchange Standard and Poor’s Composite Index (S&P 500) produced an annualised total return (including dividends) over 20 percent. By the end of that period, the performance of the stock market was concentrated in the stocks of large companies and of growth companies (those that had been delivering strong growth in earnings per share and were expected to continue to do so), especially in the areas of Technology, Media and Telecommunications (TMT).

Suggested Citation

  • Philip Arestis & Elias Karakitsos, 2010. "The Causes and Consequences of the Internet Bubble," Palgrave Macmillan Books, in: The Post ‘Great Recession’ US Economy, chapter 2, pages 23-40, Palgrave Macmillan.
  • Handle: RePEc:pal:palchp:978-0-230-27610-9_2
    DOI: 10.1057/9780230276109_2
    as

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