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.
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
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
|Issue||Claimed Areas of |
|Increase in rate of growth |
|Globalization||Capital Mobility increase |
Labor Competition increase
Goods Competitions increase
|Information age||Information production |
Low distribution costs
|Networks||Information Flow increase |
|Stock Market||Shift in investors |
Increase in transaction speed
|Management||Downsizing, Re-engineering |
Computers and IT
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.
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.
- Suggestions for additions to this list are very welcome!
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
Week’s New Economy Krugman in Slate.
Economy: The Natural Economy of the Net Goldhaber in First Monday.
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.
economic revolution Henderson in The Red Herring.
Is there a
new digital economy of ideas? Henderson in The Red Herring.