What's New About the New Economy? IT, Economic Growth and Productivity

Abstract

The U.S. economy performed extraordinarily well in the 1990s. Unemployment has dropped to historically low rates; the federal government is awash with revenues, and after a quarter century of near stagnation, productivity growth is soaring. The unexpected economic strength has stimulated much discussion about the ‘new economy,’ and what the emergence of a new economy implies for the sustainability of the economic expansion in future years. The ‘new economy’ discussion has been inconclusive, in part because the term ‘new economy’ means different things to different people.1 Some definitions of the new economy embrace a very broad notion—that the fundamental economic concepts that guided economic policy in the past have become irrelevant in an age of global competition and rapid technological change. Others have a more narrow focus—the role of information processing and communications technology (IT) in accelerating the economy’s trend rate of output and productivity growth. In this paper, we address primarily the narrower focus. New technologies are a fundamental part of the new economy notion, even if they represent only part of what some commentators mean by the term. OECD (2000) remarks that “something fundamental has changed” in the U.S. economy, and Nezu (2000), presumably voicing the views of his OECD collaborators, says that “most people agree that…information and communication technology, or IT, lies at its heart.” One major source of contention revolves around the question of whether the economic effects of the new technologies embodied in IT are captured by conventional, or ‘old’, economic concepts and analysis. We contend that they are, and that the impact of IT is not so much “new” as it is larger than before.

Keywords

• information technology