ECO-TERRORES
How the Bubble Economy burst: Of course, not everyone bought in to the mania. There were warnings that the prices were too high, the underlying assumptions ridiculous, the books cooked. Detractors included respected investors and money managers such as Warren Buffett of Berkshire Hathaway, the hedge fund manager Julian Robertson Jr., of Tiger Management, and Bill Miller, who runs the mutual fund Legg Mason Value Trust.
But during bubbles, people pay more attention to profits than to prophets. [...]
The investment surge also coincided with the arrival of the baby boom generation into that period of life when incomes are high and money starts getting saved for retirement. Much of that money ended up in stock mutual funds, which went from taking in about $125 billion in new money in 1995 to $300 billion in the peak year of 2000.
In addition, there was a flood of foreign money from investors burned in the Asian financial meltdown or disillusioned by Europe's slow progress in deregulating its economy and reforming its labor markets. From 1995 to 2000, $1.2 trillion more investment capital flowed into the United States than flowed out. Some of that money went directly into the stock and bond markets; but just as much came in the form of the direct purchase of American companies by foreign corporations.
Both types contributed significantly to the surge in stock prices, in the process lowering the cost of capital for U.S. companies and stoking over-investment in new companies, plants and equipment. The other crucial bubble ingredient was a new and economically transforming technology. [...] In the end, a key segment of society did profit from the bubble. According to J. Bradford DeLong, an economic historian at the University of California at Berkeley, consumers are the big winners. They enjoy the low prices that flow from ruinous competition and reap the benefit of improved products and services that result when companies use new technology to operate more efficiently.