As people look back on what some have called the “decade from hell,” it is easy to lump together the two bubbles that blew up on us in the last decade—the information technology bubble early in the decade and the housing bubble late in the decade. Both bubbles are categorized as twin illusions of wealth that left us with nothing but shattered dreams and devastated 401(k)s.

Yet, it is a mistake to equate the two. They bear little in common beyond the dramatic ups and downs. The housing bubble was closer to a classic speculative bubble. The IT bubble, on the other hand, was driven by genuine excitement about a new digital economy with the power to generate economic growth beyond historical norms. Rather than lumping together the two bubbles of our lost decade, it is better to reach back in history for more accurate parallels.

A better analog for the housing bubble, for example, would be the Dutch tulip craze of the 1620s. In a speculative frenzy, investors bid up prices in tulip futures to astronomical levels. One bid for a single tulip bulb equaled the annual salary of a typical 17th century merchant.

Of course, prices collapsed when people came to their senses. Fortunes were lost and many never recovered. The tulip craze stands in history as a case study in mindless speculation. After all, they were just tulips. Likewise, a house is a house; and while a house; is intrinsically more valuable than a tulip, a house has no potential to drive economic growth beyond its four walls.

The IT bubble on the other hand more closely parallels the U.S. railroad industry in the 19th century. Yes, there were plenty of “railroads to nowhere” and overbuilding with questionable financing led to the financial panic of 1893.

Still, in retrospect no one denies the explosive economic growth enabled by the network of railroads that sprawled across the United States by the second half of the 1800s. That transportation network stimulated continued growth long after the U.S. economy recovered from the 1893 panic, speeding goods across the country, spurring productivity growth, leading to a standard of living unimagined 100 years earlier.

Like the rail industry, information technology—hardware, software, applications and telecommunications—accelerates growth throughout all sectors of the economy, not just its own. Just as railways linked coal and iron ore mines to steel plants enabling the Industrial Revolution, IT enables the Digital Economy, which affects “all aspects of the economy, including internal operations of organizations, transactions between organizations; and transactions between individuals.” (Digital Prosperity, Atkinson, 2007)

The popular pessimism of our times would have us believe any economic growth resulting from the IT revolution was just an illusion. In a Salon.com article, Michael Lind argues instead that the high rate of productivity growth from the last 15 years was largely the result of cheap foreign goods. (Salon.com, Michael Lind, 1/5/2010) This kind of assertion only gains traction because the linkage between IT and economic growth is rarely undertaken. Standard economics texts often ignore the issue. The few economists who still connect the dots between IT and economic growth are like voices in the wilderness.

However, if you look beyond standard texts and popular perceptions, you will see the digital economy has actually exceeded its original promise. Robert Atkinson, of The Information Technology and Innovation Foundation (ITIF), makes that case in his seminal study: Digital Prosperity. Understanding the Economic Benefits of the Information Technology Revolution. Atkinson’s study, which draws upon 50 scholarly works, concludes: “Productivity growth was four times greater (4.18 percent vs. 1.05 percent) in industries with high levels of IT investment than those with less” and “IT capital showed 5 to 8 times higher return on investment than non-IT capital.”

More importantly for those of us looking for a hopeful sign for the future, “While IT has helped transform some sectors and activities, such as retail and financial services, its impact in other sectors is more nascent.

Sectors like healthcare, education, transportation, government, real estate and others are at the early stages of digital transformation and as they transform, productivity will continue to grow.” (Atkinson, pp. 10, 20, 7)

Perhaps this is lost on most pundits because the digital revolution has occurred not because of high-flying, high tech start-ups, but rather because of the integration of IT into virtually all aspects of the economy.

A great example here in Lansing to bring this point home can be found at Red Cedar Technology. Red Cedar’s HEEDS software “allows engineers to design products better and faster,” (GLBM, February 2010, p. 37) enabling them to get those products to market faster, hence accelerating economic growth.

Examples of similar applications are myriad, both here and throughout the country. The main take away from this is that in the United States we excel at all phases of information technology—software development, device development, networking technology (fiber optics, wireless, GPS), and the entrepreneurial ingenuity to apply all of the above to existing processes and/or create totally new ones.

Therefore, anyone who lumps together the IT bubble with the housing bubble and consigns IT to the trash heap of history is taking himself out of the best game in town. It is an attitude that cedes economic leadership to others, whether they are in the United States or not.

And if you count yourself in that camp, maybe I can interest you in some tulip futures?

		Alexander G. Beal is a senior systems consultant with AT&T, and has been an adjunct professor of economics at Centenary College, New Jersey, and Lansing Community College. Over the last 15 years he has spoken at multiple customer and industry forums on new economy and eCommerce topics. The opinions expressed in this article are those of the author and do not reflect the views of AT&T.