But, in the following weeks, it soon became clear that the dot.com crash was not going to be the beginning of a stockmarket Armageddon. Despite the heavy losses, most stock traders were accepting the fact that the new technology shares were grossly over-valued.

According to research before the crash by HSBC, the divergence in price-earnings ratios between old and new economy stocks was the largest for any market ever. Even by a very optimistic forecast of growth rates, new economy shares were overvalued by 40%. Similarly, Sushil Wadhani of the Bank of England's Monetary Policy Committee calculated that 133 internet companies which have gone public since 1995 would need to expand their revenues by an average of 80% a year for the next five years to justify their values before the crash. Even Microsoft has averaged only 53% a year.

One central theory of the new technology-driven economy is the concept of the "network effect" — a belief that "... as the number of nodes in a network increases arithmetically, then the value of the network increases exponentially". The workings of this theory can be seen that when you only have one mobile phone, fax machine or website ... the product is fairly worthless. But as you add greater numbers of connections to these new technologies ... then they each make the earlier connections more valuable. It is this "network effect" that has driven up the perception of the values of shares in new technology ventures. It has also generated a host of free products — from email programmes to web browsers — each trying to get as many network users as possible to establish their overall "value" in the marketplace.

But, as David Bennahum remarks in a recent issue of Strategy & Business : "The real "network effect" is this: in the end, booming subscriber lists cannot camouflage the fact that "cashflow is cashflow". Investors want a return on their money — and no economy, new or old, can continue to support loss-making businesses."

Sources - The Week 22 April 2000 "Stock Market tumbles" by the editors. The Guardian "A crash would be no bad thing" by Larry Elliot The Week 4 March 2000; Strategy and Business "The myth of the network effect" by David S Bennahum The Week 12 February 2000; The Times "The bursting budbble is good for business" by Anatole Kaletsky The Week 8 April 2000; The New York Observer "The global economy is a lot of baloney" by Nicholas von Hoffman The week 29 April 2000.