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How to Think About the Future of Technology

For a clear view of broader market trends, one should always distinguish between the real "operating economy" and the financial "betting economy," where speculation often runs amok. Success in business and investing lies in identifying cases where these two domains will become one and the same.

SEBASTOPOL, CALIFORNIA – It is often hard to see the true trajectory of the technology industry because it is hidden by so much financial-industry smoke. For a clear view, one must start with the notion that there are two economies: the operating economy, where people make things or provide services for paying customers; and the betting economy, where people “invest” in things that people might be able to make, and that others might want to buy and sell.

In mature sectors, the two economies are relatively close together, with investors providing capital to maintain or expand business activities for which there are knowable expectations about financial outcomes. But at the cutting edge of technology, the betting economy can get way ahead of the operating economy, assigning enormous value to unproven technologies and encouraging wild speculation or even fraud.

The fate of cryptocurrencies and Web3 is a recent case in point. But as economist Carlota Perez has shown, speculative bubbles have accompanied every transformative technology since the start of the industrial revolution. Thus, the question we need to ask, notes William H. Janeway, is whether a bubble is productive.