New Economic

In: Historical Events

Submitted By HOOLY
Words 17203
Pages 69
Does the "New Economy" Measure up to the Great Inventions of the Past?

Robert J. Gordon Stanley G. Harris Professor in the Social Sciences, Northwestern University Research Associate, National Bureau of Economic Research

April 28, 2000 draft of a paper for the Journal of Economic Perspectives

_____________________
This research is supported by the National Science Foundation. I have benefitted from discussions on these topics with many people, especially Erik Brynjolfsson, Joel Mokyr, Jack Triplett, and the late Zvi Griliches.

"The invention of the semiconductor transistor set in motion a technological revolution that is arguably even more impressive and pervasive than that of the Great Industrial Revolution of the last century." -- Flamm (1997, p. 1) "The chip has transformed us at least as pervasively as the internal-combustion engine or electric motor" -- Fortune magazine, June 8, 1998, pp. 86-87.

The miracle of U. S. economic performance in the late 1990s was a source of pride at home, of envy abroad, and of puzzlement among economists and policymakers. 1 The Federal Reserve presided over rates of output growth believed only a few years earlier to be unachievable even for a few quarters, much less over the four glowing years 1996-99. As the unemployment rate inched ever lower, the Fed reacted with benign neglect, so that early in the year 2000 short-term interest rates were no higher than they had been five years earlier and long-term interest rates were considerably lower. Underneath it all lay the apparent demise, whether

temporary or permanent, of two relationships that had restrained economic performance for the 25 years prior to 1996, Phillips' curve and Solow's paradox. Whatever had prevented "core" inflation rates from accelerating in the face of steadily falling unemployment — whether a set of beneficial shocks or a flattening of the…...

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