is the result of the transition from a
manufacturing-based economy to a service-based economy. This particular use of
the term was popular during the dot-com bubble of
the late 1990s. The high growth, low inflation and high employment of this
period led to overly optimistic predictions and many flawed business plans.
A
1983 cover article in Time magazine, "The New
Economy", described the transition from heavy industry to a new technology
based economy.[5] By 1997 Newsweek was referring to the
"new economy" in many of its articles.[6]
After
a nearly 25-year period of unprecedented growth, the United States experienced
a much discussed economic slowdown beginning in 1972. However, around 1995,
U.S. economic growth accelerated, driven by faster productivity growth. From 1972 to
1995, the growth rate of output per hour, a measure of labor productivity, had
only averaged around one-percent per year. But by the mid 1990s, growth became
much faster: 2.65 percent from 1995–99.[7] America also experienced
increased employment and decreasing inflation. The economist Robert J. Gordon referred to this as a Goldilocks economy-the
result of five positive "shocks" – "the two traditional shocks
(food-energy and imports) and the three new shocks (computers, medical care,
and measurement)"[8]
Other
economists pointed to the ripening benefits of the computer age, being realized
after a delay much like that associated to the delayed benefits of electricity
shortly after the turn of the twentieth century. Gordon contended in 2000, that
the benefits of computers were marginal or even negative for the majority of
firms, with their benefits being consolidated in the computer hardware and
durable goods manufacturing sectors, which only represent a relatively small
segment of the economy. His method relied on applying considerably sized gains
in the business cycle to
explain aggregate productivity growth.[9]
According
to another point of view, the "new economy" is a current Kondratiev wave which will end after a
50-year period in the 2040s. Its innovative basis includes Internet,nanotechnologies, telematics and bionics.[10]
Dot-coms
In
the financial markets, the term has been associated with the Dot-com bubble. This included the emergence
of the NASDAQ as a rival to the New York Stock
Exchange, a high rate of IPOs,
the rise of Dot-com stocks
over established firms, and the prevalent use of such tools as stock options. In the wider economy the
term has been associated with practices such as outsourcing, business
process outsourcing and business
process re-engineering.
At
the same time, there was a lot of investment in the companies of the technology
sector. Stock shares rose dramatically. A lot of start-ups were created and the stock
value was very high where floated. Newspapers and business leaders were
starting to talk of new business models. Some even claimed that the old laws of
economics did not apply anymore and that new laws had taken their place[citation
needed]. They also claimed that the improvements in
computer hardware and software would dramatically change the future, and that
information is the most important value in the new economy.
Some,
such as Joseph Stiglitz and
Blake Belding, have suggested that a lot of investment in information
technology, especially in software and unused fibre optics, was useless. However, this
may be too harsh a judgment, given that U.S. investment in information
technology has remained relatively strong since 2002. While there may have been
some overinvestment, productivity research shows that much of the investment
has been useful in raising output.
The recession of 2001, disproved many of
the more extreme predictions made during the boom years, and gave credence to
Gordon's minimization of computers' contributions. However, subsequent research[citation
needed] strongly suggests that productivity growth
has been stimulated by heavy investment in information and communication
technology. Furthermore, strong productivity growth after the 2001 recession
makes it likely that many of the gains of the late 1990s may endure.
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