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Every boom outspends its revenue
The spending gap
That spending has risen nearly fivefold in three years, from about $140 billion. This year it equals about 2.5% of gross domestic product, and next year it heads past a trillion dollars, close to 3%. Revenue, if the count is generous, comes to $150 to $200 billion.
Earlier booms
Earlier booms ran the same way. Spending on railroads after the Civil War peaked at six or seven percent of gross domestic product, with the government giving away land to build them, and the 1870s washed out the economy. The internet buildout of the late 1990s peaked at 2.5 to 3%, and the cables went in before the revenue arrived. Electrification stayed below 3% and still had its booms and busts.
Why it repeats
Chief executives in every era reason the same way: a rival is digging a canal or laying track, so the company digs a canal or lays track. Mark Zuckerberg spent more than $80 billion on the metaverse, and Google is spending because OpenAI could take its ad revenue and it has high profit margins to protect. Fear of missing out and defensiveness push spending past what revenue supports, and capital markets back it decade after decade. Then growth plateaus, and the companies are like a cartoon character who has run off a cliff with his feet still moving.
How did land grants fuel railroad building?
Congress passed the Pacific Railway Acts in 1862 and 1864 to pay for a transcontinental line. The railroads received alternating sections of public land along their tracks, plus federal bonds to fund construction. Companies sold or mortgaged that land to raise more money. Historians estimate that federal land grants to railroads added up to well over 100 million acres.
Why did the 1873 railroad crash spread?
The Panic of 1873 began in September when Jay Cooke and Company, a Philadelphia bank that was financing the Northern Pacific Railway, failed. Railroad bonds were widely held by banks and investors, so losses on them moved quickly through the financial system. The New York Stock Exchange shut for ten days. Many railroads went bankrupt over the following years.
What happened to the fiber laid in the 1990s?
Telecom companies laid far more fiber-optic cable than traffic needed in the late 1990s, and much of it sat unused after the market crashed in 2000 and 2001. Unlit strands of cable are called dark fiber. Companies that had borrowed to build networks, including Global Crossing, filed for bankruptcy in 2002. Later demand from video streaming and cloud computing put much of that surplus cable to use.
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