What, another paper on the new economy? When financial markets
are raking through the debris of $8 trillion in lost equity value, and “.com”
is a reviled four-symbol word, a paper on the impact of the new economy
on productivity would seem as welcome as an analysis of the role of
whales in the lighting revolution.
In fact, the new economy (or, more precisely, information technologies)
continues to raise important puzzles about productivity growth.
Variations in productivity growth have proved to be one of the most
durable puzzles in macroeconomics. After a period of rapid growth following
World War II, productivity stagnated in the early 1970s. There
was no shortage of explanations offered, including rising energy prices,
high and unpredictable inflation, rising tax rates, growing government,
burdensome environmental and health regulation, declining research and
development, deteriorating labor skills, depleted possibilities for invention,
and societal laziness.1 Yet these explanations seemed increasingly
inadequate as inflation fell, tax rates were cut, regulatory burdens stabilized,
government’s share of output fell, research and development and
patents granted grew sharply, real energy prices fell back to pre-1973 levels,
and a burst of invention in the new economy and other sectors fueled
an investment boom in the 1990s.