The Internet and the New Economy
Alan S. Blinder
J u n e 2 0 0 0
1775 Massachusetts Ave. N.W. • Washington, DC 20036-2188 • Tel: 202-797-6105 • Brookings - Quality. Independence. Impact.
The generally superior macroeconomic performance of recent years—especially the more favorable combination of low inflation, low unemployment, and the apparent acceleration of productivity growth—is commonly attributed to the effects of information technology (IT) in general, and of the Internet in particular. This paper examines the evidence for and against the following four propositions:
• Productivity growth in the U.S. economy has speeded up.
• Advances in IT are the driving force behind this acceleration in productivity.
• Because of faster productivity growth, the U.S. economy can now sustain a higher
growth rate without suffering from higher inflation.
• The Federal Reserve should therefore pursue a looser monetary policy than it would with slower productivity growth.
In brief, are we in a New Economy?
It is impossible to make a definitive judgement until sufficient time passes to gain some historical perspective
, but some evidence points to a recent acceleration of productivity growth—and therefore, of sustainable Gross Domestic Product (GDP) growth—at about the time the Internet was diffusing rapidly through the economy. At minimum, that’s an interesting coincidence.
... and so on.