Readings on the “New Economy”

Like many academic economists, I have been wondering about all of this
“New Economy” talk that has been appearing in the popular press.

So what the heck is this New Economy concept anyway?  The definitions
I’ve seen range from declarations that inflation is dead to projections
of a glorious technology age and the end of scarcity. The more I chase
the concept the more it seems to elude me. There seem to be as many definitions
(or more) as there are users – and there is certainly no consensus as to
what the New Economy really is, how it differs from the “old economy”,
and what the implications of the changes will be.

Is this all just cocktail party talk, loose analysis and bold prediction,
or is there actually something to this? I hope to spend the next couple
features exploring the meaning and implications of a New Economy.

Core Ideas

The New Economy ideas can typically be split into some mix of two core
components. The first component specifies how the current economy is, in
some way, different from the economy of the past. The second looks at how
the economy will behave (or is behaving) differently as a result of the
changes.

From what I’ve read, there seems to be several core issues involved
in people’s concepts of the new economy. I hope to expand upon these basic
ideas:

 

 

Issue	Claimed Areas of   Fundamental Change
Productivity,  Technology	Increase in rate of growth  Mismeasurement issues
Globalization	Capital Mobility increase  Labor Competition increase  Goods Competitions increase
Information age	Information production  Increasing returns  Knowledge workers  Low distribution costs  Mass Customization
Networks	Information Flow increase  Network externalities  Increasing returns
Stock Market	Shift in investors  Increase in transaction speed
Management	Downsizing, Re-engineering  Computers and IT  Knowledge Management  Outsourcing  Just in Time Inventories  other Consulting fads

 

What do the changes all mean for the economy?

That, of course, depends upon which of the New Economy components you
are talking about.

The most common claim is that we now no longer need to worry as much
about inflation, but there are plenty of other predictions about how other
areas of the economy will react.

New Economy and New Economics

There are also a few areas in which the “new economy” is confused with
“new economics”. The basic argument says that because the economy has changed
in some fundamental way, old rules  – or old economic theories 
– no longer apply.

I am very skeptical of arguments that proceed along these lines. It’s
fine to talk about changes in the economy – but the leap to invalidate
basic results in an established field of study requires a much stronger
level of analysis than is typically displayed. Just because there has been
a change in the economy doesn’t mean that the same theories can’t be adapted
or won’t work in some fundamental way.

Conclusion

Underlying much of the New Economy writing is the idea that the economy
is great and bound to do better.

I suspect that much of the New Economy optimism has it’s roots in the
same psychology that leads to lottery ticket purchases. While you know
that it’s unlikely that you’ll win the $30 Million jackpot, it’s still
a heck of a lot of fun to think about what you’d do with all that money.

Well, I buy the occasional lottery ticket also – so stay tuned for more
talk on the New Economy in coming weeks.

 

Further Readings:

Suggestions for additions to this list are very welcome!


Has
Inflation Been Tamed? From Robery Samuelson in the Washington Post.

Inflation
Examined OnLine NewsHour.


New Rules for
the New Economy From Wired.

Old
Rules for the New Economy DeLong in Rewired.


The New Economy:
What it Really Means from BusinessWeek.

The Speed Limit:
Fact and Fancy in the Growth Debate, Alan S. Blinder in The American
Prospect

Business
Week’s New Economy  Krugman in Slate.


The Attention
Economy: The Natural Economy of the Net Goldhaber in First Monday.

Entertainment
Values Krugman in Slate.

The New Economy:
Where Is It Taking Us? – Robert Kuttner in Providence Journal.

There is no
new economy Pontin in The Red Herring.

The digital
economic revolution Henderson in The Red Herring.

Is there a
new digital economy of ideas? Henderson in The Red Herring.

Filed under: Economy