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Does the 'New Economy' Measure up to the Great Inventions of the Past?

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  • Gordon, Robert J

Abstract

Many observers have declared the ‘New Economy’ to be an Industrial Revolution even more important than the Second Industrial Revolution of 1860-1900, and this Paper raises doubts about this comparison. It shows that the recent acceleration in productivity growth in the US economy can be attributed to a technological acceleration within durable manufacturing and to increased investment in computers in the rest of the economy. But there has been no acceleration of trend growth in US multi-factor productivity in the 88% of the economy outside of durable manufacturing. In comparison with the Great Inventions of 1860-1900, the ‘New Economy’ falls short. The rapid decline in the cost of computer power means that the marginal utility of computer characteristics like speed and memory has fallen rapidly as well, implying that the greatest contributions of computers lie in the past, not in the future. The Internet fails as a Great Invention because much of its use involves substitution of existing activities from one medium to another, because much Internet investment involves defence of market share rather than creation of something of social value, because much Internet activity duplicates existing activity like mail order catalogues, while the latter have not faded away, and finally because much Internet activity, like daytime e-trading, involves an increase in the fraction of work time involving consumption on the job.

Suggested Citation

  • Gordon, Robert J, 2000. "Does the 'New Economy' Measure up to the Great Inventions of the Past?," CEPR Discussion Papers 2607, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2607
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    References listed on IDEAS

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    1. Erik Brynjolfsson & Loren Hitt & Shinkyu Yang, 2002. "Intangible Assets: How the Interaction of Computers and Organizational Structure Affects Stock Market Valuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(1), pages 137-198.
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    More about this item

    Keywords

    Computers; Economic Growth; Internet; New Economy; Productivity;

    JEL classification:

    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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