The 'new economy' : background, historical perspective, questions, and speculations

In a presentation at the Federal Reserve Bank of Kansas City’s 2001 symposium, “Economic Policy for the Information Economy,” Professor J. Bradford DeLong of the University of California-Berkeley, and Harvard President Lawrence H. Summers suggested that any attempt to analyze the meaning and importance of the "new economy" must grapple with four questions:> First, in the long run, how important will ongoing technological revolutions in data processing and data communications turn out to be? Second, what does the crash of the Nasdaq tell us about the future of the new economy? Third, how should government regulation of the economy change so as to maximize the benefits we reap from these ongoing technological revolutions? And fourth, how will the American economy respond to the shock to public confidence and the destruction caused by the terror attacks of September 11?> In exploring answers to these questions, the authors found the following: The long-run economic impact of the ongoing technological revolutions in data processing and data communications will be very large indeed. The crash of the Nasdaq tells us next to nothing about the dimensions of the economic transformation that we are undergoing. It does, however, tell us that the new economy is more likely to be a source of downward pressure on margins than of large durable quasi-rents. The principal effects of the "new economy" are more likely to be "microeconomic" than "macroeconomic," and they will lead to profound—if at present unclear—changes in how the government should act to provide the property rights, institutional frameworks, and "rules of the game" that underpin the market economy. And finally, the events of September 11 will slow private investment in new technologies, but U.S. military spending is likely to increase, and the increase in military spending will be concentrated on high-technology data-processing and data-communications products. On balance, therefore, the changes in economic structure that fall under the category “new economy” are not likely to be much affected.