Bubble, bubble, bust and trouble

Summer, sadly, is over. Hopefully, aftershocks notwithstanding, so is the recent hair-raising "correction" by the stock market.

Everyone got a haircut, but telecom stocks were clipped more than most. Even the highest of high flyers-the Lucents and Ciscos-were trimmed, albeit bouncing back within days.

The effects of recent economic events will be permanent, or at least as permanent as anything known to the dismal science.

Regardless of what the Federal Reserve does, the cost of capital is going to go up, slowing the wave of investment that has characterized the long bull run-and fueled an unprecedented boom in the telecom world.

Telecommunications will be less affected by this shift than many other industries. But the telecom industry won't be exempt from this universal economic reality.

Because so many Americans now own stocks, the stock market receives intense media attention, largely of the superficial variety. In these circumstances, it is easy to confuse the stock market with the economy, and conclude that the market is the economy. But it's not.

The market is an expression of the economy. The economy drives the market, not vice versa-the deification of Wall Street savants by the general business press notwithstanding.

In times of true trouble, stock market mystics tend to respond in one of two ways. A small group of traditionalists, overcome by unmanageable despair, hurl themselves out of their office windows. A larger group, merely depressed, turns from the window and embraces with renewed fervor the image of the cycle, which teaches that horrible news today simply means that excellent news is that much closer, maybe as near as tomorrow. As night follows day, day must surely follow the darkest night.

I don't believe anyone took the window route during the recent correction. (However, the current popularity of low-rise suburban office parks among financial types may have merely masked a phenomena that was more spectacular in those sweet days when Hoover was in the White House and investors were all piled on top of one another in skyscrapers in lower Manhattan. Not all windows are created equal.) But in our time, there has been no shortage of references to self-healing cycles.

These facile theories about inevitable market cycles that naturally lead back to prosperity and even higher stock prices are comforting to investors, large and small. These theories are infantile palliatives. There is nothing inevitable about the stock market or anything else in economics. Fuzzy cyclical theories promote a better night's sleep for the sweaty investor, but they don't reflect, much less address, a bleaker underlying reality.

The world today is crossing an economic minefield.

The landmine in the metaphor is not a bubble in the stock market, but the bust in the world economy. The briefest inventory shows economic crises in southern Asia, Japan and Latin America, and catastrophe in Russia. No, this is not a coincidence.

Global gross domestic product-GDP is the total output of each national economy-is down this year after increasing steadily throughout the '90s. Currencies around the world are wobbling. (The Russian ruble is disintegrating, not wobbling.) Investment in developing economies is also down in 1998.

What's up this year? Nothing.

As the most international of industries, telecommunications is sensitive to global economic shifts. The best that can be hoped for now is that the global economy will contract sharply, then reorganize itself and enter a new period of steady growth in a few years. The telecom industry would be a core industry driving-and benefiting mightily from-that new growth.

But the possibility of collapse-particularly in some, or even all, of the major national and regional economies noted above-cannot be excluded.

Fortunately, telecommunications is such an intrinsic, productive factor in contemporary economic and social life that it is sure to do better, no matter how dire the general economic conditions, than the general economy and probably more than any other single industry.

Now is not the time for telecom empire builders to break out the bubbly. Sobriety, always a virtue in business, is now a necessity.