Economic theory is endlessly fascinating--mostly because it is almost uniformly wrong. All those graphs and charts and predictions and spreadsheets turn to dust if one little calculation is off. And since things change every day, those charts and other nonsense are generally out-of-date by the time they're printed up.

But we need economic theorists. Ideas are a good thing to have, especially ones that can be proven right or wrong. Most of all, we need to remember economic history. A few years ago, a lot of irresponsible morons declared that the boom of the 1990s represented a "new paradigm" or "new economy": an expansion without end. This strange marriage of the Gloria Patri and Adam Smith turned out to be short-lived. The bubble burst in March 2000--though folks didn't really figure out what was going on until much later.

Thing is, what happened in the 90s with the Internet and the dot-com boom has happened before. Some people have compared the wild speculation in tech stocks to the famous Dutch tulip disaster, but in truth, the business world's massive fascination with the Internet is really is a dead ringer for the "tronic" boom of the late 1960s and early 1970s. Most of my readers probably aren't old enough to remember, but back at the end of the 60s the Moon Shot program had created a need for massive computer power, and many folks began to realize that the newly-minted integrated circuit or silicon chip (which could fit large numbers of switches in a space the size of one old-fashioned transistor) had almost infinite uses. Companies spent untold billions trying to exploit the silicon chip and the suddenly cheap transistor. Tons of companies added the suffix "-tronic" to their names in hopes of riding the wave. After a wild ride, the bubble burst in 1972; the stock market took 10 years to recover.

But a lot of that "wasted" speculation did have tangible results. The Xerox "PARC" in what is now called Silicon Valley invented the computer mouse and WSYISYG screen interface. Apple hired a lot of Xerox folks to work on the Lisa--and, more famously, Lisa's little brother, Macintosh. In fact, the tronic boom helped to create the technology that would drive the Internet. Oh, sure, it all came together years and year later, but that's how progress works.

Back to economics. In the 1960s, the boom was driven by corporations and the stock market. The boom of the 90s was highly entrepreneurial, fueled by money from the stock market and a select group of extremely rich guys. Venture capitalists, or VCs for short.

The VCs (not to be confused with the Viet Cong, of course) plowed untold billions into all sorts of bad ideas, then sat back and waited for the magic IPOs that would repay their investment handsomely. The funny thing about the 90s boom is that everyone got richer, even when you look at it today. Sure, the market hasn't gotten back to its pre-crash levels of March 2000, but even factoring in the destruction of the NASDAQ (that index is still about 60 percent below its record high), stock market returns over the last 10 years are still pretty good. And remember all those jobs? Even the most lackadaisical philosophy major could take her choice of good-paying jobs. Down here in my corner of the New South, Wendy's advertised starting positions at more than $10 an hour. Good times were indeed had by almost everyone.

All paid for, by and large, by the VCs. These guys (and they are almost all, to a man, guys) spent profusely, tax consequences be damned. The relatively higher taxes of the mid-90s didn't stop them from investing or making more money. If they paid more taxes, that meant they'd made that much more money. And with the promises of big score after big score (a local software company, Red Hat, immediately became the highest-capitalized corporation in the state after its stock price soared more than 1000 percent--that isn't a typo, folks--in the days after its IPO), why not? When it became obvious that the market wasn't really in the mood to continue supporting thousands of companies who had no revenues--not just no profits, mind you, but no money coming in at all--the VCs similarly closed their purses. The dead weight collapsed, businesses that catered to said dead weight went broke, stockholders cursed their portfolios and the economy tanked. End of story.

You could blame the VCs, or the crooked IPO underwriters or any number of other weasels, but the truth is that the market decided that the economy needed to retrench. This is a natural process. New paradigms emerge every day, but never trust some schmuck who foresees endless expansion--unless he's Stephen Hawking and he's talking about the Universe.

The surpluses under Clinton? Due mostly to the massive tax receipts of the boom years. Reagan-era tax percentages likely would have brought surpluses as well, though not nearly as quickly nor as big. And even without the Bush tax cut, the surpluses projected out into infinity likely would have died off during the recession.

This isn't a sop to fiscal irresponsibility. After all, low inflation and low interest rates are the sorts of conditions that tend to spur spending by the ultra-rich. If the money works harder, the payoff is likely to be that much bigger. The tax policies of the late 80s and early 90s helped to create an atmosphere that encouraged the VCs to get busy with the money.

But we still have no inflation and ultra low interest rates. Why aren't the rich guys spending us back into a boom? Because the market isn't ripe. That's the final key to all of this. The market is the pure distillation of capitalism. And the market isn't some weird abstract idea. The market is all of us. Every single person in world--even those poor shmoes in North Korea--are part of the global market. If we all start running around like chickens with our heads cut off, the market bogs down. If we all work together, the market hums along nicely. When the workers of the world unite...

Sorry. Got a little carried away. Funny how the edges of the extremes come together in the strangest ways.

Jon Worley was two classes away from an economics minor, so you can trust every little thing he says.