I was happy to see the discussion over The Wall Street Journal's Google/net neutrality story. Always good to see holes poked and the truth set free.

But let's not allow the eruptions, backlashes, recriminations, and "debunkings" -- This topic has been debunked. End of story. Over. Sit down! -- obscure the still-fundamental issues. This is a terrific starting point for debate, not an end.

Content delivery networks (CDNs) and caching have always been a part of my analysis of the net neutrality debate. Here was testimony that George Gilder and I prepared for a Senate Commerce Committee hearing almost five years ago, in April 2004, where we predicted that a somewhat obscure new MCI "network layers" proposal, as it was then called, would be the next big communications policy issue. (At about the same time, my now-colleague Adam Thierer was also identifying this as an emerging issue/threat.)

Gilder and I tried to make the point that this "layers" -- or network neutrality -- proposal would, even if attractive in theory, be very difficult to define or implement. Networks are a dynamic realm of ever-shifting bottlenecks, where bandwidth, storage, caching, and peering, in the core, edge, and access, in the data center, on end-user devices, from the heavens and under the seas, constantly require new architectures, upgrades, and investments, thus triggering further cascades of hardware, software, and protocol changes elsewhere in this growing global web. It seemed to us at the time, ill-defined as it was, that this new policy proposal was probably a weapon for one group of Internet companies, with one type of business model, to bludgeon another set of Internet companies with a different business model.

The venerable Economist magazine has made a hash of my research on the growth of the Internet, which examines the rich media technologies now flooding onto the Web and projects Internet traffic over the coming decade. This "exaflood" of new applications and services represents a bounty of new entertainment, education, and business applications that can drive productivity and economic growth across all our industries and the world economy.

But somehow, The Economist was convinced that my research represents some "gloomy prophesy," that I am "doom-mongering" about an Internet "overload" that could "crash" the Internet. Where does The Economist find any evidence for these silly charges?

In a series of reports, articles (here and here), and presentations around the globe -- and in a long, detailed, nuanced, very pleasant interview with The Economist, in which I thought the reporter grasped the key points -- I have consistently said the exaflood is an opportunity, an embarrassment of riches.

I've also said it will take a lot of investment in networks (both wired and wireless), data centers, and other cloud infrastructure to both drive and accommodate this exaflood. Some have questioned this rather mundane statement, but for the life of me I can't figure out why they deny building this amazingly powerful global Internet might cost a good bit of money.

One critic of mine has said he thinks we might need to spend $5-10 billion on new Net infrastructure over the next five years. What? We already spend some $70 billion a year on all communications infrastructure in the U.S. with an ever greater portion of that going toward what we might consider the Net. Google invests more than $3 billion a year in its cloud infrastructure, Verizon is building a $25-billion fiber-to-the-home network, and AT&T is investing another $10 billion, just for starters. Over the last 10 years, the cable TV companies invested some $120 billion. And Microsoft just yesterday said its new cloud computing infrastructure will consist of 20 new "super data centers," at $1 billion a piece.

I'm glad The Economist quoted my line that "today's networks are not remotely prepared to handle this exaflood." Which is absolutely, unambiguously, uncontroversially true. Can you get all the HD video you want over your broadband connection today? Do all your remote applications work as fast as you'd like? Is your mobile phone and Wi-Fi access as widespread and flawless as you'd like? Do videos or applications always work instantly, without ever a hint of buffer or delay? Are today's metro switches prepared for a jump from voice-over-IP to widespread high-resolution video conferencing? No, not even close.

But as we add capacity and robustness to many of these access networks, usage and traffic will surge, and the bottlenecks will shift to other parts of the Net. Core, edge, metro, access, data center -- the architecture of the Net is ever-changing, with technologies and upgrades and investment happening in different spots at varying pace. This is not a debate about whether the Internet will "crash." It's a discussion about how the Net will evolve and grow, about what its capabilities and architecture will be, and about how much it will cost and how we will govern it, but mostly about how much it will yield in new innovation and economic growth.

The Economist and the myriad bloggers, who everyday try to kill some phantom catastrophe theory I do not recognize, are engaging in the old and very tedious practice of setting up digital straw men, which they then heroically strike down with a bold punch of the delete button. Ignoring the real issues and the real debate doesn't take much effort, nor much thought.

About 10 days ago I gave a presentation to a D.C. business group on "Innovation: The End? Or a New Beginning?" We got into a discussion of high-end immigration and were in general agreement that we should grant easy green cards to all STEM PhDs educated in the U.S., among other enticements to smart immigrants. One commenter then suggested this was a kind of a zero-sum race between the U.S., China, and India for the world's human capital.

I replied, however, that the technological, economic, and political advance of China and India is a good thing. Innovation anywhere in the world benefits us, too, if we are open to the global economy. For hundreds of years, North America attracted much or most of the world's financial and human capital because (1) though imperfect, we were an attractive realm of freedom and (2) much of the rest of the world was so inhospitable to innovation, entrepreneurship, education, and was generally politically intolerant. This massive tilt in our direction is now over. Other parts of the world present more opportunities for entrepreneurship and education, and we're not going to get all the smart people, no matter how open our immigration laws. Doesn't mean we shouldn't try to get the smartest people. Just that there's going to be lots of innovation and new enterprise in new non-U.S. places, and that overall that's a good thing.

So I was intrigued when an Economist article on this very topic hit my radar yesterday. Turns out Amar Bhidé of Columbia Business School has written a whole book on the subject: The Venturesome Economy.

So does the relative decline of America as a technology powerhouse really amount to a threat to its prosperity? Nonsense, insists Amar Bhidé of Columbia Business School. In "The Venturesome Economy", a provocative new book, he explains why he thinks this gloomy thesis misunderstands innovation in several fundamental ways.

First, he argues that the obsession with the number of doctorates and technical graduates is misplaced because the "high-level" inventions and ideas such boffins come up with travel easily across national borders. Even if China spends a fortune to train more scientists, it cannot prevent America from capitalising on their inventions with better business models.

That points to his next insight, that the commercialisation, diffusion and use of inventions is of more value to companies and societies than the initial bright spark. America's sophisticated marketing, distribution, sales and customer-service systems have long given it a decisive advantage over rivals, such as Japan in the 1980s, that began to catch up with its technological prowess. For America to retain this sort of edge, then, what the country needs is better MBAs, not more PhDs.

A lot to agree with. The addition of China and India to the world economy, with new minds and new centers of research and innovation, make it more likely that new general purpose technologies like the integrated circuit or laser will be invented -- maybe the next one will be in the field of biotech or energy, who knows. It will be good for humanity, at least for those open to these inventions and, yes, the commercializers. But how does clustering -- like Silicon Valley, where a whole ecosystem of talent, firms, and infrastructure spiral virtuously upward -- come into play? Does clustering mean as much as it used to in the age of instant global broadband communication? If technology and the corresponding innovations rapidly diffuse everywhere -- and they do -- it's largely a matter of who earns the profits. Who sets the standards. And which governmental jurisdictions get to tax the innovations and entrepreneurs. In nationalist terms, where military and political power derive from economic power, it is largely a competition for tax revenues.

But Bhidé, at least in this article (I've yet to read the book), I think still underplays the importance of PhDs or their equivalents who not only make the once-in-a-generation breakthroughs but also do help manufacture and commercialize these inventions. And Bhidé probably overplays the the importance of MBAs, who he says are key to our "consumer" culture. Consumers don't drive the economy. Entrepreneurs do. Yes, MBAs are good at cleaving consumers from their wallets. But consumption is a function of growth and growth expectations, which depend on entrepreneurial confidence. Supply creates its own demand.

If we had a perfectly globalized, flat, frictionless world -- it's true, the "where" of innovation wouldn't matter much. And we should basically be shooting for that type of world. But until we get there, the "where" of innovation probably matters more than Bhidé would like.

In this game, it's the farsighted innovators and consumers, who want free trade and tax competition, against the all-too-often shortsighted politicians, who seek the short-term advantage of protectionism, tax gouges, and "energy independence" campaigns. It takes real wisdom to understand that China's or India's gain is also our own.

Matthew Slaughter of Dartmouth's Tuck School, one of today's best thinkers on trade and globalization, says the consequences of any Big Three Auto bailout go far beyond the initial price tag.

First, it would hurt foreign direct investment in the U.S. and thus the insourcing of U.S. jobs:

In 2006 these foreign auto makers (multinational auto or auto-parts companies that are headquartered outside of the U.S.) employed 402,800 Americans. The average annual compensation for these employees was $63,538.

At the head of the line of sustainable auto companies stands Toyota. In its 2008 fiscal year, it earned a remarkable $17.1 billion world-wide and assembled 1.66 million motor vehicles in North America. Toyota has production facilities in seven states and R&D facilities in three others. Honda, another sustainable auto company, operates in five states and earned $6 billion in net income in 2008. In contrast, General Motors lost $38.7 billion last year.

Across all industries in 2006, insourcing companies registered $2.8 trillion in U.S. sales while employing 5.3 million Americans and paying them $364 billion in compensation.

Second, Slaughter says, a Big Three bailout could hurt U.S.-headquartered multinationals:

these companies employ more than 22 million Americans and account for a remarkable 75.8% of all private-sector R&D in the U.S. Their success depends on their ability to access foreign customers. . . .

This access to foreign markets has been good for America. But it won't necessarily continue. The policy environment abroad is growing more protectionist. . . .

Will a U.S.-government bailout go ignored by policy makers abroad?

No. A bailout will likely entrench and expand protectionist practices across the globe, and thus erode the foreign sales and competitiveness of U.S. multinationals. And that would reduce these companies' U.S. employment, R&D and related activities. That would be bad for America.

Rising trade barriers would also hurt the Big Three, all of which are multinational corporations that depend on foreign markets. In 2007, GM produced more motor vehicles outside North America than in -- 5.02 million, or 54% of its world-wide total.

Finally, a bail-out further endangers the dollar:

Will a federal bailout that politicizes American markets bolster foreign-investor demand for U.S. assets?

Not likely. Instead, America runs the risk of creating the kind of "political-risk premium" that investors have long placed on other countries -- and that would reduce demand for U.S. assets and thereby the value of the U.S. dollar.

Read the whole thing. Bailing out Detroit means bailing on free trade and American innovation.

See my take on the election and the prospects for capitalism in today's Wall Street Journal:

If Barack Obama ran for president by calling for a heavier hand of government, he also won by running one of the most entrepreneurial campaigns in history.

Will he now grasp the lesson his campaign offers as he crafts policies aimed at reigniting the national economy? Amid a recession, two wars, and a global financial crisis, will he come to see that unleashing the entrepreneur is the best way to raise the revenue he needs for his lofty priorities?

Update: Here's a brief radio interview on the topic with WTOP.

Coincident with the news of a few days ago that Microsoft is embracing the Web even for its longtime PC-centric OS and apps, The Economist has a big special report on "cloud computing," including articles on:

- "The Evolution of Data Centres"
- "Software as a Service"
- "Connecting to the Cloud"
- "The Economics of the Cloud"
- The Effect on Business; and
- "Computers without Borders"

PC-centric Microsoft has been moving toward the Net slowly for years. There's MSN search, the Live interactive gaming platform, Web-delivered software updates, and video chat, among other Net-centric applications. But PC software still dominates the company. Today the company finally and fully embraced the cloud. Following Google, Amazon, IBM, Salesforce.com, and others, Microsoft says it has spent $3 billion on its new cloud platform and that its plans are more ambitious than its rivals.

Next year Microsoft will open a 100-megawatt data center (these facilities are measured in power usage now, not in numbers of servers) in Chicago, bigger than anything Google has running.

It's a big shift for Microsoft, technically and culturally. Since most of its competitors were born on the Web, cloud computing isn't so much a shift for them as a natural evolution.

"We're going to create a new operating system for the next 20 to 50 years," [Microsoft chief software architect Ray] Ozzie says. "We don't get an opportunity to rewrite it very often, so we're really making key architectural decisions now for a long time."

PC, RIP.

But what happens when clouds collide?

As usual, my friend George Gilder gets it right and points the way out of tough times:

The crucial conflict in every economy, however, goes on. It is not between rich and poor, Main Street and Wall Street, or even government and the private sector. It is between the established system and the new forms of wealth rising up to displace it--all the entrenched knowledge of the past and the insurrections of futuristic enterprise and invention. The real source of all growth is human creativity and entrepreneurship, which always comes as a surprise to us, especially in the worst of times, as Rich Karlgaard notes. No amount of knowledge about the present can predict the specific profile and provenance of innovation. From the pits of the crash of 2000, when the Internet and the dot.com siege were famously dismissed as a barren "bubble," came Google (nasdaq: GOOG - news - people ) and MySpace to rise up and take all the chips and establish a new Internet economy. If creativity was not unexpected, governments could plan it and socialism would work. But creativity is intrinsically surprising and the source of all real profit and growth. Because the U.S. remains the world's largest economy and still leads the world in business and technological creativity, the current crisis is mostly confined to boondoggles of finance. It will pass rapidly and evolve into a new boom. Emerging is a parallel unregulated financial system based on entrepreneurial creativity and invention.

Irwin Stelzer thinks so. At least for a long while.

there is one consequence of the upheavals in the credit markets, and now in the "real economy" that is less visible, and will be with us even after the recovery takes hold. The era of ever-free trade has ended. Any lingering hopes that free-trade advocates might have had to stem the rising tide of protectionism are gone: A worldwide financial crisis is not an environment that fosters acceptance of the view that all is for the best in a world in which capital, labor, and goods move freely across borders.

How we manage the fallout from the financial crisis will be as important as relieving the immediate panic itself. No, more so.

Watch this brief but insightful video commentary from Rich Karlgaard on "American Panic. Asian Confidence." (While you're at it, check out Forbes.com's revamped Opinion Channel, with Tunku Varadarajan at the helm.)