(The following note was written in 2000 and it still stands in 2004.)
The US economy has shown steady growth from 1992 till 2000, and people have been talking about a New Economy. The stock exchange has exploded, the Productivity Slowdown seems to be over, unemployment has been dropping below the CWIRU (NAIRU) while prices have remained stable, an Asian Crisis that might have turned into a big depression did not do that: and economists have been looking all over to find causes. The New Economy answer would be that the Volcker - Reagan years have created a stable environment, and that technology now is causing all kinds of revolutions. Computers, the internet, biology, a better understanding of economics and capital markets, you name what, the interaction of all these: they all cause a wholly different world. And billionaires to prove it.
My view on this issue is sensibly guarded.
Yes, the internet indeed has interesting properties, vide Shapiro & Varian (1999). I have been using computers intensively since 1972, have my own software on the internet - see Colignatus (1999). Yes, on biology and other technologies the possibilities are huge, and man can be a creative animal.
No, it all is plain old economics. Shapiro & Varian (1999) make that clear too. Also: (a) It should be obvious by now that my own analysis on unemployment and inflation already provides much of the answers. Many causes why the CWIRU dropped can be identified - e.g. the EITC increase (labour cost reduction) in 1993, and the abolishing of ‘welfare as we know it’. Society has started to accept a lower subsistence level - which is a dubious origin of growth for the rich. (b) Lower taxes for the rich gives them more money e.g. to invest in the stock market. (c) Americans have been borrowing. (d) The fact that 1970-1992 was a low period in post-War US history does not mean that the current ‘high’ is so high. I think that the basic foundation was given by FDR, and hence the creative human energy was provided with a stable environment to prosper. The 1970-1992 period fouled up the FDR heritage. Getting back to that heritage is important - but not something ‘new’. (e) Of course there still are many people in poverty, and many are seduced to crime which ends them up in prison. (f) The New Economy is much coloured by Wall Street, the Jones’s driving up the property price of the Jones’s. The financial system still needs reworking.
I think I could go on, but I’d rather stop. The basic idea is that if there is a new kid on the block then this does not mean that the block has changed. In particular when the kid is someone old who everybody has forgotten about. In economics, though, perceptions are important - and the New Economy idea might be relevant for that.
On the 2005 edition of this book
This 2005 edition of this book is virtually the same as the 2000 edition. This note discusses the points of consideration.
(1) The major change seems to be that I now use the name Colignatus for my scientific work for better distinction from political or commercial work. I remain of course a single individual but the papers and books can be usefully labelled differently. In some archives you will have to keep searching on the name “Cool”.
(2) Unfortunately, I have not been able yet to extend the discussion as indicated in chapter 32 on dynamic optimality. The prime cause is a new job in a new field that required much new study.