Does the “New Economy” Measure up to the Great Inventions of the Past?

The annual rate of price decline between 1972 and 1987 would have been 35 percent per annum, rather than 20 percent per annum, if the transitional benefit from mainframes to personal computers had been taken into account.

“Gordon (1990, p. 239) calculates that the annual rate of price decline between 1972 and 1987 would have been 35 percent per annum, rather than 20 percent per annum, if this transitional benefit had been taken into account.”

• cites Gordon (1990) sourceCould not verify

  The available passages from the Preface (pp. 2–4) discuss computer-price research but give no calculation for 1972–1987 or comparison of 35% and 20% annual price declines. Searches for those figures and the mainframe-to-personal-computer transition returned only Preface passages; the cited p. 239 was not available to assess. (LLM, conf=0.75)

  Experimental — accuracy not yet measured

The government deflators for software and telecommunications equipment exhibit implausibly low rates of price decline.

“because the government deflators for software and telecommunications equipment exhibit implausibly low rates of price decline (Jorgenson and Stiroh, 2000).”

• cites Jorgenson and Stiroh, 2000 sourcePartly supported

  Sections 38–40 identify reasons official deflators may understate price declines for software and communications equipment, and section 66 tests alternative deflators with faster declines. But the paper calls the software issue a competing explanation and the communications-equipment bias possible; it does not establish that both official rates are implausibly low. (LLM, conf=0.85)

  Experimental — accuracy not yet measured

The outcome of the debate over the software deflators has almost no impact on the question of how the software sector of the Internet economy affects productivity in the rest of the economy.

“However, as shown by Jorgenson and Stiroh (2000), the outcome of the debate over the software deflators has almost no impact on the question of how this sector of the Internet economy affects productivity in the rest of the economy.”

• cites Jorgenson and Stiroh (2000) sourceCould not verify

  Section 66 examines alternative software price deflators, and section 70 says they change measured output growth and capital services. Neither passage assesses whether the choice of deflator has almost no impact on the software sector’s effect on productivity in the rest of the economy; searches for that comparison found no passage that settles it. (LLM, conf=0.68)

  Experimental — accuracy not yet measured

The nominal share of computer hardware expenditures in the total economy rose rapidly before 1987 but barely increased at all after that year.

“the nominal share of computer hardware expenditures in the total economy (which implicitly holds income constant) rose rapidly before 1987 but barely increased at all after that year”

The capital-deepening effect accounts for 0.33 percentage points of the acceleration, all due to computers.

“The capital-deepening effect of faster growth in capital relative to labor in the aggregate economy accounts for 0.33 percentage points of the acceleration (all due to computers), and an acceleration of multifac-”

• AssumptionThe authors state this as an assumption: Actual and trend output were equal in the later stages of upswings in 1954:Q1, 1963:Q3, 1972:Q2, 1978:Q2, 1987:Q3 and 1995:Q4.

A major fraction of the revival in multifactor productivity growth has occurred within the part of the economy engaged in producing computers and peripherals, and within the rest of the durable manufacturing sector, which together comprise only about 12 percent of the private business economy.

“First, when examined closely, it turns out that a major fraction of the revival in multifactor productivity growth has occurred within the part of the economy engaged in producing computers and peripherals, and within the rest of the durable manufacturing sector, which together comprise only about 12 percent of the private business economy.”

The remaining 0.64 points of the acceleration can be directly attributed to computers.

“The remaining 0.64 points can be directly attributed to computers.”

• AssumptionThe authors state this as an assumption: Actual and trend output were equal in the later stages of upswings in 1954:Q1, 1963:Q3, 1972:Q2, 1978:Q2, 1987:Q3 and 1995:Q4.

An acceleration of multifactor productivity growth in computer and computer-related semiconductor manufacturing accounts for almost all of the rest of the acceleration.

“tor productivity growth in computer and computer-related semiconductor manufacturing account for almost all of the rest.”

• AssumptionThe authors state this as an assumption: Actual and trend output were equal in the later stages of upswings in 1954:Q1, 1963:Q3, 1972:Q2, 1978:Q2, 1987:Q3 and 1995:Q4.

Over the last five decades, rapid rates of price decline for computing power are standard.

“Although the price decline of computing power has accelerated from 1995-99 as opposed to the period from 1987-94, as shown earlier in Figure 1, over the last five decades these rapid rates of price decline are standard.”

A cyclical effect of the magnitude estimated here is not unprecedented or unusual.

“Yet a cyclical effect of the magnitude estimated here is not unprecedented or unusual.”

• AssumptionThe authors state this as an assumption: Actual and trend output were equal in the later stages of upswings in 1954:Q1, 1963:Q3, 1972:Q2, 1978:Q2, 1987:Q3 and 1995:Q4.

The slope of the price-quantity relationship was appreciably flatter during 1960-72 and 1972-87 than during 1987-95 or 1995-99.

“In fact, the slope of the price-quantity relationship was appreciably flatter during 1960 -72 and 1972-87 than during 1987-95 or 1995-99.”

Capital deepening during 1995-99 proceeded at an extraordinary rate.

“Capital deepening during 1995-99 proceeded at an extraordinary rate.”

The slope of the price-quantity relationship in the top frame of Figure 2 does not flatten noticeably.

“If there had been a discontinuous rightward shift in the demand curve for computer hardware, the slope of the price-quantity relationship in the top frame of Figure 2 should flatten noticeably, as the rate of increase of quantity accelerates relative to the rate of decline in price, but it does not.”

If the demand curve has not shifted, the inverse of these slopes is the price elasticity of demand, namely -2.03, -1.97, -1.64, and -1.36 in these four intervals.

“If the demand curve has not shifted, the inverse of these slopes is the price elasticity of demand, namely Ϫ2.03, Ϫ1.97, Ϫ1.64, and Ϫ1.36 in these four intervals”

• cites Brynjolfsson (1996, p. 292)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

The overall acceleration in output per hour, combining multifactor productivity growth and the impact of capital deepening, is more than a full percentage point per year when 1995-99 is compared to the 1972-95 slowdown period.

“The overall acceleration in output per hour, combining multifactor productivity growth and the impact of capital deepening, is more than a full percentage point per year when 1995-99 is compared to the 1972-95 slowdown period.”

The author cannot type or think any faster than he did with his first 1983 personal computer that contained 1/100th of the memory and operated at 1/60th of the speed of his present model.

“I cannot type or think any faster than I did with my first 1983 personal computer that contained 1/100th of the memory and operated at 1/60th of the speed of my present model.”

At the end of 1995 there was an acceleration of the rate of price change in computer hardware (including peripherals) from an average rate of -14.7 percent during 1987-95 to an average rate of -31.2 percent during 1996-99.

“at the end of 1995 there was an acceleration of the rate of price change in computer hardware (including peripherals) from an average rate of Ϫ14.7 percent during 1987-95 to an average rate of Ϫ31.2 percent during 1996 -99.”

From the fourth quarter of 1993 to the fourth quarter of 1999, the performance of a computer at a given price rose by a factor of 5.2.

“From the fourth quarter of 1993 to the fourth quarter of 1999, the performance of a computer at a given price rose by a factor of 5.2.”

From the fourth quarter of 1995 to the fourth quarter of 1999, the annual growth of output per hour was 1.33 percentage points faster than from 1972:Q2 to 1995:Q4.

“From the fourth quarter of 1995 to the fourth quarter of 1999, the annual growth of output per hour was 1.33 percentage points faster than from 1972:Q2 to 1995:Q4 (as shown in Table 2, column 1, lines 1 and 4).”

• AssumptionThe authors state this as an assumption: Actual and trend output were equal in the later stages of upswings in 1954:Q1, 1963:Q3, 1972:Q2, 1978:Q2, 1987:Q3 and 1995:Q4.

Existing computer price deflators fail to take account of the radical decline in the price per calculation that occurred in the transition from mainframes to personal computers.

“Indeed, existing computer price deflators fail to take account of the radical decline in the price per calculation that occurred in the transition from mainframes to personal computers, which have been studied only separately, not together.”

Over the period since 1987, spending on computers stagnated at around 1.3 percent of the nonfarm private business economy.

“over the period since 1987, spending on computers stagnated at around 1.3 percent of the nonfarm private business economy, as shown in the bottom frame of Figure 1.”

By the end of the year 2000 the percentage of American households hooked up to the Internet will have reached 50 percent.

“by the end of the year 2000 the percentage of American households hooked up to the Internet will have reached 50 percent.”

The first layer of the Internet economy (hardware manufacturers) accounts for the largest single component of the post-1995 productivity growth acceleration, both the direct effect of faster multifactor growth in computer hardware and the indirect capital-deepening effect of the investment boom in information technology.

“As we have seen above in Table 2, this sector accounts for the largest single component of the post-1995 productivity growth acceleration, both the direct effect of faster multifactor growth in computer hardware (including computer-related semiconductors) and the indirect capital-deepening effect of the investment boom in information technology.”

• cites Barua et al. (1999)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

So far the payoff from more efficient links in the supply chain has appeared in other parts of durable manufacturing, but not in the rest of the economy.

“So far this payoff has appeared in other parts of durable manufacturing, but not in rest of the economy.”

There has been an outward shift of the supply curve for computers, driven by technological advance, at a rate much faster than the upward shift in the demand for computer services.

“This set of points of price and quantity for given years has an intuitive supply and demand interpretation: there has been an outward shift of the supply curve for computers, driven by technological advance, happening at a rate much faster than the upward shift in the demand for computer services.”

There are real limitations to the replacement of human beings by computers.

“A final reason that computers run into diminishing returns is that there are real limitations to the replacement of human beings by computers.”

There is no evidence of a rising marginal cost of producing additional computer speed, memory, and other characteristics at a given level of technology.

“there is no evidence of a rising marginal cost of producing additional computer speed, memory, and other characteristics at a given level of technology.”

The technological advance created by the New Economy of the last five years may be less significant than it at first appears.

“From this perspective, the technological advance created by the New Economy of the last five years may be less significant than it at first appears.”

• AssumptionRests on an assumption: The New Economy is more about computers than pharmaceuticals.

It would take a reduction in the cyclical effect in the right-hand column of Table 2 by .29 points (from .63 to .34) to eliminate the basic conclusion that trend productivity growth outside of durables has decelerated.

“it would take a reduction in the cyclical effect in the right-hand column of Table 2 by .29 points (from .63 to .34) to eliminate the basic conclusion that trend productivity growth outside of durables has decelerated.”

• AssumptionThe authors state this as an assumption: Actual and trend output were equal in the later stages of upswings in 1954:Q1, 1963:Q3, 1972:Q2, 1978:Q2, 1987:Q3 and 1995:Q4.

Some part of the productivity revival recorded in Table 1 was transitory rather than permanent.

“If output was growing faster than trend, then productivity was also growing faster than trend, and some part of the productivity revival recorded in Table 1 was transitory rather than permanent.”

It seems unlikely that taking gains in life expectancy into account will elevate the possible Third Industrial Revolution relative to the second one.

“Thus, it seems unlikely that taking gains in life expectancy into account will elevate the possible Third Industrial Revolution relative to the second one.”

In 1890 one railroad employee was killed for every 300 employed.

“Danger was not confined to mines or mills; in 1890 one railroad employee was killed for every 300 employed.”

• cites Bettman (1974)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

The sheer pace at which computer users are sliding down the computer demand curve to ever-lower marginal utility uses makes diminishing returns particularly important in understanding the computer paradox.

“What makes diminishing returns particularly important in understanding the computer paradox is the sheer pace at which computer users are sliding down the computer demand curve to ever-lower marginal utility uses.”

The rapid spread after 1880 of running water, indoor plumbing, and urban sanitation infrastructure was perhaps the most tangible improvement in the everyday standard of living besides electric light.

“Perhaps the most tangible improvement in the everyday standard of living, besides electric light, came through the rapid spread after 1880 of running water, indoor plumbing, and urban sanitation infrastructure.”

In 1890, railroad-connected accidents caused 10,000 deaths.

“Travel between cities on railroads was surprisingly dangerous; in 1890, railroad-connected accidents caused 10,000 deaths.”

• cites Bettman (1974)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

The productivity enhancement of WYSIWYG was minor in comparison to the initial word processing revolution.

“The productivity enhancement of WYSIWYG was minor in comparison”

A large part of the consumer surplus from word processing occurred in going from point A to B to C, and further gains are relatively small.

“As the diagram is drawn, a large part of the consumer surplus occurred in going from A to B to C, and further gains are relatively small.”

The shift in the price-quantity slope is consistent with the view that the most important uses of computers were developed more than a decade into the past, not currently.

“this shift in the price-quantity slope is consistent with the view that the most important uses of computers were developed more than a decade into the past, not currently.”

In 1882, only 2 percent of New York City's houses had water connections.

“In 1882, only 2 percent of New York City's houses had water connections.”

• cites Bettman (1974)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

The shape of the graph offers evidence that the demand curve for computer hardware has not shifted much or at all.

“The shape of the graph offers evidence that the demand curve has not shifted much or at all.”

The computer hardware and software industries are not unique in running into some form of diminishing returns.

“The computer hardware and software industries are certainly not unique in running into some form of diminishing returns.”

A second distinguishing feature of the development of the computer industry, after the decline in price, is the unprecedented speed with which diminishing returns set in.

“A second distinguishing feature of the development of the computer industry, after the decline in price, is the unprecedented speed with which diminishing returns set in.”

Personal computers are a secondary step in the evolution of computer technology, made practical by decreasing costs of computer power.

“Personal computers are a secondary step in the evolution of computer technology, made practical by decreasing costs of computer power.”

The time cycle of Moore's Law shortened from 18 months to about 12 months at this time.

“The driving force behind the greater rate of price decline was an acceleration in the rate of technological progress; apparently, the time cycle of Moore's Law, which has historically held that the price of computing power falls by half every 18 months, shortened from 18 months to about 12 months at this time.”

Instead of waiting for the productivity boost to arrive, it is more plausible that the main productivity gains of computers have already been achieved.

“Instead of waiting for the productivity boost to arrive, it is more plausible that the main productivity gains of computers have already been achieved.”

The declining point of intersection of the supply curve with the fixed demand curve implies a rapid decline in the marginal utility or benefit of computer power.

“the declining point of intersection of the supply curve with the fixed demand curve implies a rapid decline in the marginal utility or benefit of computer power.”

The fact of extreme diminishing returns in computers argues against the David (1990) delay hypothesis.

“But the fact of extreme diminishing returns in computers argues against the David (1990) delay hypothesis.”

• cites David (1990)Not checked — no full text of the source

The fixed supply of time to any individual creates a fundamental limitation on the ability of exponential growth in computer speed and memory to create commensurate increases in output and productivity.

“The fixed supply of time to any individual creates a fundamental limitation on the ability of exponential growth in computer speed and memory to create commensurate increases in output and productivity.”

Three-quarters of all computer investment has been in industries with no perceptible trend increase in productivity.

“Thus, three-quarters of all computer investment has been in industries with no perceptible trend increase in productivity.”

It is unlikely that historians and economists will look back at the present surge in computer investment as the harbinger of a Third Industrial Revolution.

“But there are deeper reasons, rooted in basic principles of economics like diminishing returns, as to why, half a century from now, it is unlikely that historians and economists will look back at the present surge in computer investment as the harbinger of a Third Industrial Revolution.”

• AssumptionRests on an assumption: The New Economy is more about computers than pharmaceuticals.

These five clusters of inventions created an increase in per capita income and wealth during the golden years of productivity growth from 1913-72 that allowed an improvement in living standards.

“These five clusters of inventions, in turn, created an increase in per capita income and wealth during the golden years of productivity growth from 1913-72 that allowed an improvement in living standards even in those aspects of consumption where inventions did not play a major role, particularly the ability of families to afford many more square feet of shelter (and in the suburbs more land sur”

The greatest benefits of computers lie a decade or more in the past, not in the future.

“Moreover, it is quite plausible that the greatest benefits of computers lie a decade or more in the past, not in the future.”

The Solow computer paradox survives intact for most of the economy.

“In this sense the Solow computer paradox survives intact for most of the economy, and the need to explain it motivates the rest of this paper.”

Computers provided powerful benefits early on.

“But computers provided powerful benefits early on.”

Despite the innovations of the First Industrial Revolution, multifactor productivity grew at a snail's pace in the nineteenth century.

“But despite the list of innovations of this time period-the steam engine, the power loom, and so on-multifactor productivity grew at a snail's pace in the nineteenth century.”

• cites De Long (2000)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

Computer investment has had a near-zero rate of return outside of durable manufacturing.

“These results imply that computer investment has had a near-zero rate of return outside of durable manufacturing.”

• AssumptionThe authors state this as an assumption: Actual and trend output were equal in the later stages of upswings in 1954:Q1, 1963:Q3, 1972:Q2, 1978:Q2, 1987:Q3 and 1995:Q4.

The largest difference between the computer and the great inventions of the Second Industrial Revolution is the unprecedented rate of decline in the price of computer power.

“There are a number of differences between the computer and the great inventions of the Second Industrial Revolution, but perhaps the largest difference is the unprecedented rate of decline in the price of computer power.”

• AssumptionRests on an assumption: The New Economy is more about computers than pharmaceuticals.

In 1996, current dollar value-added in durable manufacturing was 11.6 percent of current dollar output in the nonfarm private business sector.

“In 1996, current dollar value-added in durable manufacturing was 11.6 percent of current dollar output in the nonfarm private business sector.”

• cites Economic Report of the President, February 1999, Tables B-10 and B-12Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

There is little evidence that the demand curve for computer hardware has shifted in response to the Internet.

“But as noted earlier in the discussion of Figure 2, there is little evidence that the demand curve has shifted in this way.”

Television reached 50 percent household penetration in only seven years from the first commercial TV station in 1947.

“but dating from the first commercial TV station in 1947 this penetration rate was reached in only seven years.See Kurian (1994, series R105 divided by A335).”

• cites Kurian (1994, series R105 divided by A335)Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

To the extent that e-commerce is provided by one business to another, it is an intermediate good and not directly relevant for computing the productivity of final output in the noncomputer economy.

“To the extent that e-commerce is provided by one business to another, it is an intermediate good and not directly relevant for computing the productivity of final output in the noncomputer economy.”