(MONEY Magazine) – In the summer of 1990, a movie called Slacker opened at the Dobie Theater, just off the campus of the University of Texas at Austin. In the film a stream of smart but directionless young Austinites meander across the screen, seemingly committed to nothing except opting out of any commitments. When Slacker was released nationally the following year, the title became shorthand for a shiftless generation that was supposed to be the first to fail to surpass the economic achievements of its parents. Austin at the time was the perfect backdrop for this idea: a pleasant place to go about the business of failing to achieve things. The national economic mood was pessimistic, the local job market was terrible, and the whole place seemed to have a lingering hangover from a real estate bust in the 1980s.

Today the mood in Austin--and in the rest of the country--could not possibly be further removed from the Slacker moment. The wild optimism of Silicon Valley's start-up culture and Wall Street's blind faith in economic Darwinism have come together in pockets of new prosperity, from Seattle to Raleigh/Durham, from San Diego to Nashville, from Boston to Atlanta. But Austin in particular is a microcosm of all this change: A place once defined by the Slacker mystique and a vibrant music scene is now defined, for better or worse, by Dellionaires, stock options, exploding real estate prices and entrepreneurs. People here routinely insist that Austin is still a small town, but its population has more than doubled since 1990, the year I graduated from the University of Texas and moved on. Now more than 1 million live here, and there are reportedly 2,000 newcomers a week.

By the time I visited Austin this year, there was a feeling of inevitability in the air, a confidence about these good times and how far and long they will roll. It was a somewhat unsettling thing to confront, a kind of hubris that seemed vaguely dangerous--and not just for Austin. "There is a momentum" was the matter-of-fact assessment given to me by Steve Papermaster, a local entrepreneur whose current venture is Agillion, a Web services provider for small businesses. "And the momentum will fuel the momentum, which will fuel the momentum."

By now we know how the boom has ratcheted up the expectations of many individual investors. And we know it has caused plenty of companies to obsess over their share prices as never before. I came back to Austin to try to suss out how it has changed communities like this one. Papermaster's confident summation came back to me again and again. But I wondered: What explains this momentum? Are we shaping it? Or is it shaping us?

IN THE BEGINNING, THERE WAS DELL

Momentum is an easy enough concept to understand. As a theory of investing, it is based on the idea that once a stock begins moving decisively in one direction it is more likely than not to keep moving in that direction. There's an element of self-fulfilling prophecy to this--or to put it more cynically, an element of the pyramid scheme. As investors pile into a stock with momentum, they contribute to the very thing that they found attractive.

Now think of this momentum as it applies not just to stocks, but to entrepreneurs, to start-ups, to a city. Here's how it began in Austin: Even before Slacker had its local run back in 1990, IBM had set up a programming group in the area and by the late 1980s was bringing in contract programmers from all over the country to work 18-month stints. These programmers, many of whom ended up staying, formed a first layer of local tech talent, along with a large number of smart graduates from the university.

That laid the groundwork. Things really got rolling when a UT graduate named Michael Dell founded a PC maker and in 1988 took it public; as Papermaster puts it, "Dell was the anchor tenant in the success mall." Papermaster, himself a UT grad who founded his first software company based on a business plan he'd written while a student, was part of the wave of success that rippled through the city after Dell. The software firm, Tivoli, went public in 1994 and was later bought by IBM. Another tech firm, Trilogy, built its internal culture around young entrepreneurial types and soon spun off a couple of start-ups. This was important. When a local firm was bought or went public, its founding employees got rich, and routinely turned around and invested in new start-ups. Soon branch offices of companies like Cisco and Motorola arrived, and Austin began to develop a hot reputation. In the second era of Austin's new growth, from 1995 to 1998, many key players were coming from San Francisco, from Boston, from Seattle, from everywhere.

Then the Internet "pushed a restart on everything," in the words of Joseph Aragona, a general partner with the city's leading venture-capital firm, Austin Ventures. What happened next was a replay of what had already happened, only faster: More companies were founded, more of them were successful, more talent came in from out of town and more venture money became available to found even more companies. In 1996, a total of 24 venture-financing deals in Austin added up to about $76 million in capital. In 1999, Austin-area companies took in $844 million in 116 such deals. It was a rise of 218% from the previous year--better, even, than the 150% nationwide venture-funding increase. And by the end of trading on March 24, a hypothetical portfolio of the 11 Austin tech companies that had IPOs since January 1999 would have been worth $23 billion.

That's an astonishing creation of wealth in one community, and it gives one pause. Sometimes, when things are moving fast, it becomes difficult to separate momentum's causes from its effects. Were these start-ups creating hype and buzz, or was it the other way around? A few days after a local tech firm called Netpliance went public, I drove past its headquarters on Loop 360 with another Austin entrepreneur. Netpliance bought an ad during the Super Bowl this year. The company's 1999 revenues, this person pointed out to me, were a measly $26,000. "So," he added, "my maid had more revenue than Netpliance last year." He laughed. At the moment we were speaking, the market pegged Netpliance's worth at almost $740 million.

THIS BUSINESS ABOUT BUZZ

Where does momentum come from? It begins with buzz. Buzz is tricky. If you're a start-up, you need it to get capital and clients, to attract talent and partners and press attention, and maybe more capital later on. You need buzz enough to rise above the clatter of a hundred start-ups, a thousand start-ups, all building buzz simultaneously. So where do you get buzz? Can you buy it? Can you make it?

Many here try to create it at events like the Austin High Tech Happy Hour, a recurring networkathon that began in 1998 with about five people. A more recent installment had 1,100 attendees. I attended a Happy Hour at the Austin Lyric Opera House where about 800 showed up. The sponsors were three start-ups with venture funding and a deep desire for momentum.

One of those sponsors was Convio, a fledgling Internet firm that had designated a microbrew called Fat Tire as its "official beer" for the night and was giving away a trip to the brewery in Denver. The winner would be announced later in the evening by fully costumed opera singers, after they performed a short operatic piece about Convio, written by the company's ad agency. I spent part of the evening with Vinay Bhagat, the founder and CEO of Convio and a smooth and charming 30-year-old with a mild British accent and a cosmopolitan air. He's a Trilogy Software alum. As I sipped a Fat Tire, Bhagat pointed toward a Convio sign tied to the balcony above us. Events like this are really for the branding, he said. Get known. Get your name out there.

There was nothing bombastic about Bhagat, nor any sheepishness about the need for attention. Convio's goal is "harnessing the power of the website to help nonprofit organizations be more efficient," according to a recruiting ad the company recently ran in the Austin American-Statesman. "What if you could work with the hottest technology, get rich, and make the world a better place?" the ad asks. "You can at Convio." The ad plays right to the gap between what Austin was (a liberal college town) and what it is becoming (a tech boomtown). It also seemed calculated to provoke--maybe cause a little buzz. After all, like practically every start-up I encountered, Convio was poised for a hiring binge.

I milled around the party, which was spread over several rooms, a courtyard and a roof deck, meeting the superconfident Convio crew. Any boom that has drawn to town characters as dynamic and ambitious as Bhagat, his wife (who is currently making a documentary about Austin's start-up culture) and his colleagues cannot be bad for Austin; moreover, it's hard to imagine that people so smart and committed could fail in their mission. And yet I met dozens of smart and committed people working for all sorts of start-ups, and it was also hard to imagine how any of them could fail--though many, if not most, quite certainly would. Suddenly in the middle of this buzzing throng, it seemed to me that it had become completely impossible to tell real potential from hype.

Someone handed me my third Fat Tire. I was having a great time. This excitement--this hope--presents a good picture of Austin, circa 2000; multiply it by every Momentumville in America, and it's easy to believe that all these intelligent, optimistic entrepreneurs are in complete control of our future. Eventually I saw the opera singers up on the balcony. I guess they were singing Convio's song up there. But the truth is, you couldn't make out a word of it above the din.

WHAT, US WORRY?

It's only afterward, when you step back from events like the High Tech Happy Hour, that the doubts emerge. There are some things about momentum that can seem frightening. What happens when a stock, an economy or a city starts to lose that momentum? Does it plunge off a cliff like a cartoon character does? By early August, the value of the hypothetical 11-stock portfolio of newly minted Austin tech companies had fallen by 45%, to about $12.94 billion. One local company, DrKoop.com, had practically become a national poster child for troubled dotcoms.

I wondered: Is anyone worried? And about what, exactly? Even after the Nasdaq began tumbling, I found little fear of a deeper crash in the tech community. Austin's worries more often concerned how the boom is widening the gap between the haves and the have-nots. Patricia Hayes of the Seton Health Care Network talked to me about the concerns that led three Austin-area counties to produce a Sustainability Indicators report. The rapid development of a particular segment of a community, she explained, makes the challenge for the economically disadvantaged "astronomically greater." Austin is much more expensive than it used to be, and new development is pushing the sprawl into the neighboring Hill Country that has always been one of the city's attractions. There is concern that the city's infrastructure--from its highways to its schools--simply cannot keep up. Even the tech community has rallied around an organization called Austin 360 (co-founded by Steve Papermaster), whose mission is to prevent the byproducts of success from ruining the city.

But for some, the tech companies and the momentum they've created are the villains. Paging through the Austin Chronicle, a weekly that I wrote for as a college student, I read a columnist's attacks on "computer nerds and other noncreative, security- and retirement-plan-driven types." A few days later, I spoke to Louis Black, the Chronicle's editor, and found that he was in the middle of preparing a cover story asking, "Is High Tech Killing Austin?" So, I asked him, is it?

Black has lived in Austin since the 1970s. He's a bit of a local icon; he even had a cameo in Slacker. In Black's view, the new Austin--"the one we've kind of mutated into"--is still a work in progress. Yes, the city has lost things. Yes, he worries about another bust or about turning into Silicon Valley or, worse, into sprawling, smoggy Houston. Yet his excitement is palpable. He clearly does not write off the tech crowd as "noncreative"; in fact it turns out that he has a few VC pals. And anyway, he added, a more vibrant economy is good for other businesses. Area unemployment has fallen to something like 2.3%. And with all the tech firms taking out recruiting ads, why, even the Chronicle itself is benefiting.

AUSTIN'S CITY LIMITS

If Austin is a microcosm of changes in America, then Robin Rather is a microcosm of Austin. She is 41, with long brown hair and broad, sunny features. Though part of the boom (Rather runs a firm called Mindwave, which does Web-based research for tech companies), she's better known locally as the former leader of the venerable Save Our Springs, an organization devoted to battling developers over environmental issues. She began our conversation by making the case that, for the most part, the old Austin--the famous blues club Antone's, the local swimming hole at Barton Springs--can still be found by those who care to look.

"The problem is, if you're living here, the big 'gotcha' is the cost of living," she concedes. And the more we talk, the more frank she is in her concern that the place could deteriorate into a sprawling, overdeveloped city. Finally she worked her way up to her prescription. "I'm going to say the M word," she said. "The thing no one wants to say. Moratorium." If a business is getting ahead of itself, she asked, what would it do? "You would turn down clients," she asserted. "It's not that big a leap. This is an ecosystem, and if you're really going to save the Austin that we're talking about, there's got to be some middle ground. What is Austin's carrying capacity? If you're talking about a community, you're talking about human beings and quality of life and living. You can't have a grab-market-share mentality." In other words, this momentum thing is good, but it must be kept under control.

I liked Robin Rather. She is the kind of person I expect to find when I'm in Austin--a warm, smart, talkative native Texan. But I have my doubts about her moratorium argument, and they were clarified for me when I visited a couple of the founders of Kurion, a Web infrastructure start-up. J.T. Keating, the company's CEO, is a transplant from California. The chief technologist is Amir Husain, who moved to Austin from his native Pakistan a few years ago. Talking to them, I had wondered aloud about whether Austin would manage, somehow, to balance the boom's momentum with the things that used to define this particular community--if Austin would find a middle ground. "There is no such thing as a middle ground," Husain replied evenly. "It's an anomaly. You're either falling and passing through this middle ground, or you're heading up and passing through the middle ground."

I have a feeling that it's Husain who is right. Like so much of America, Austin is undergoing deep changes, and in some cases trying to resist them, but the efforts to have it both ways, to remain a precious Texas Hill Country town and be a booming metropolis all at once, are ultimately quixotic. We would like to think that we can direct all this economic momentum where we want it to go, but really, the momentum has a life of its own. That's a lesson for investors, certainly, but also for those of us graduating into New Economy jobs, or living in cities and towns that have changed suddenly--and transformatively.

When things slow down, as they inevitably must, we'll wake up to a country that's familiar in its contours but that may be hard to recognize. Sorting what we like from what we don't like about this new world will be a painful process. But the most important shifts have already happened--in Austin and in the rest of America too. We think like Wall Street, and we admire Silicon Valley, and slackers now seem like something from a past we've practically forgotten already. Things may change again in any number of ways, but we've come too far now to go back to what we were before.