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Economic News, Data and Analysis

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:


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