Two years ago, before the high-flying Internet stocks flamed out and crashed, there was general consensus that a new economy characterized by rapid productivity growth linked to the Internet had developed in the United States. Experts are now more cautious in using the term new economy.
What was called the new economy was characterized by rapid growth, low inflation, heavy investment on information technology, and perhaps most importantly, very rapid gains in productivity.
That latter term, productivity, is the amount of goods and services produced per hour. Productivity in the late 1990s in the United States was rising much faster than the two and a half percent annual increases of recent decades. It was said that the Internet was unleashing dramatic productivity gains that were transforming the economy, making it far more efficient and competitive.
Michael Drury, a commodities trader in Memphis, Tennessee, is skeptical about the definition of the new economy and productivity gains. He said, "There is a changing economy and it is evolutionary rather than revolutionary, we think. Certainly computers and services are more important than in the past. We are skeptics, however, about some of the productivity numbers that are attached with this new economy."
Mr. Drury said official figures overstate the productivity because computers cannot not generate that much of a gain.
Another economist, in a different part of the country, believes there definitely is a new economy. But, says Arizona State University economics professor Timothy Hogan, the current economic slowdown combined with the crash of the "dot com" stocks has hurt workers and investors. Professor Hogan said, "I think it was a real investment boom, a speculative boom, where people got real caught up in the vision and the stories instead of actual economic activity. And the people who got caught holding those stocks at the end, they got hurt by it."
Mr. Hogan said the Phoenix area, where he resides, experienced a speculative boom in housing during 1999 and 2000 as a result of the "dot com bubble." But he says companies like Intel, the world's biggest computer-chip maker, and Motorola have recovered and their Phoenix operations are again doing well.
In Memphis, in the center of the United States, economist Mike Drury said the deflating of the Internet bubble has been painful and scary. "It's always a little scary," he said, "when you see that much value disappear from the equity market. But I think it is returning us to a more realistic level of what valuations are. When the stock market got to be worth more than all the real estate in the country it started making you a little bit nervous."
Well known high-tech companies like Worldcom, Amazon.com, Yahoo, AOL / Time Warner, and Cisco have seen their valuations fall by billions and their share prices are down from 40 percent to 80 percent from their highs in 2000.
In Cleveland, Ohio, in the industrial Midwest, economist John Kleinhenz said the economy is still dependent on manufacturing. But Mr. Kleinhenz believes there is a new economy. "It's difficult to define new economy," he said. "But I guess the best way I could say it is if you're applying the technology in a way to become more competitive, and in a way that increases the acceptability of products in the market, then there is a new economy in northeastern Ohio."
The consensus now is that there is a new economy, but its impact is clearly not seen as so dramatic as was the case just two years ago.