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Measuring and Sustaining the New Economy: Report of a Workshop
The continued strength and vitality of the U.S. economy continues to astonish economic forecasters.1 A consensus is now emerging that something fundamental has changed with “new economy” proponents pointing to information technology as the causal factor behind the strong performance of the U.S. economy. In this view, technology is profoundly altering the nature of business, leading to permanently higher productivity growth throughout the economy. Skeptics argue that the recent success reflects a series of favorable, but temporary, shocks. This argument is buttressed by the view that the U.S. economy behaves rather differently than envisioned by new economy advocates.2
While productivity growth, capital accumulation, and the impact of technology were topics once reserved for academic debates, the recent success of the U.S. economy has moved them into popular discussion. The purpose of this paper is to employ well-tested and familiar methods to analyze important new information made available by the recent benchmark revision of the U.S. National Income and Product Accounts (NIPA). We document the case for raising the speed limit—for upward revision of intermediate-term projections of future growth to reflect the latest data and trends.
The late 1990s have been exceptional in comparison with the growth experience of the U.S. economy over the past quarter century. While growth rates in the 1990s have not yet returned to those of the golden age of the U.S. economy in the l960s, the data nonetheless clearly reveal a remarkable transformation of economic activity. Rapid declines in the prices of computers and semi-conductors are well known and carefully documented, and evidence is accumulating that similar declines are taking place in the prices of software and communications equipment. Unfortunately, the empirical record is seriously incomplete, so much remains to be done before definitive quantitative assessments can be made about the complete role of these high-tech assets.
Despite the limitations of the available data, the mechanisms underlying the structural transformation of the U.S. economy are readily apparent. As an illustration, consider the increasing role that computer hardware plays as a source of economic growth.3 For the period 1959 to 1973, computer inputs contributed less
Labor productivity growth for the business sector averaged 2.7% for 1995-99, the four fastest annual growth rates in the 1990s, except for a temporary jump of 4.3% in 1992 as the economy exited recession (BLS (2000)).
Stiroh (1999) critiques alternative new economy views, Triplett (1999) examines data issues in the new economy debate, and Gordon (1999b) provides an often-cited rebuttal of the new economy thesis.
Our work on computers builds on the path-breaking research of Oliner and Sichel (1994, 2000) and Sichel (1997, 1999), and our own earlier results, reported in Jorgenson and Stiroh (1995, 1999, 2000) and Stiroh (1998a). Other valuable work on computers includes Haimowitz (1998), Kiley (1999), and Whelan (1999). Gordon (1999a) provides an historical perspective on the sources of U.S. economic growth and Brynjolfsson and Yang (1996) review the micro evidence on computers and productivity.