The "New" Economy?
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EXHIBITOR: That might be it, yeah.
PAUL SOLMAN: Exhibitors setting up for the annual meeting of the American economics association, held this past weekend in Boston. We come here looking for confirmation of what we’d heard so much about this past year: The so-called new economy, a high-tech, high-octane era of unprecedented, recession-free, even millennial growth, governed by supposedly new rules, featuring low unemployment, low inflation, and prosperity as far as the eye can see, with, of course, the occasional obstacle en route. And, indeed, the mood was upbeat. How’s the economy doing?
EXHIBITOR: Very well.
PAUL SOLMAN: You’re thriving? Are you personally?
EXHIBITOR: Oh, yes, absolutely.
PAUL SOLMAN: From brainy jobs to brawny ones, the story’s was the same. How’s the economy been for you?
EXHIBITOR TWO: It’s been real good for me.
PAUL SOLMAN: Yeah?
EXHIBITOR TWO: Yeah.
PAUL SOLMAN: It’s better than you expected?
EXHIBITOR TWO: Yes.
PAUL SOLMAN: But when we asked the economists, almost none were willing to adopt the term “new economy,” not even the newest members of the profession.
SEAN MAY, MIT PhD/Job Seeker: I think by and large the economy is still the same. You know, G.M. is still manufacturing cars, and Kraft is still manufacturing cheese and macaroni, and, like, you know, you have a couple of Silicon Valley billionaires, but, by and large, people are doing the same type of things that they did five years ago.
PAUL SOLMAN: If the pros mostly agreed that there was no new economy, they also reached consensus on the current one: That the boom of the 1990’s has been pretty amazing.
CLAUDIA COHEN, Harvard University: Well, I am surprised. I am very surprised. Ten years ago, I don’t think that we thought that at the beginning of this new millennium, we would say the United States still has the highest income-per-capita in the world. And for good reason, we shouldn’t be upset if we were number two or number three, but we’re pretty ebullient and happy that we’re still number one.
PAUL SOLMAN: Now, you’ll be relieved to hear that, these being economists, there was disagreement over why the 90’s boom happened in the first place. Arnold Harberger gave most of the credit to right-wing economic policies.
ARNOLD HARBERGER, UCLA: Our economy, since the 1980’s, has gone through a whole series of deregulations and liberalizations. We’re coming closer and closer to being a true market economy than we were before.
PAUL SOLMAN: A free market?
ARNOLD HARBERGER: A freer market economy than we were before.
PAUL SOLMAN: Michael Meeropol, on the other hand, claims the policies of leftist economists have been the key.
MICHAEL MEERPOOL, Western New England College: What we argued all the time is that you don’t need to stop the economy when unemployment gets below 6%, you don’t need to stop it when it gets below 5%; and, by the way, it doesn’t hurt to raise the minimum wage, it doesn’t hurt to have redistributionist tax policies. All three of those things are the main reasons for the good economy that we’ve had the last three years.
PAUL SOLMAN: So economists like Meeropol give the credit to active government policy, plus a Federal Reserve that didn’t, as in the past, slow the economy when unemployment kept dropping. There is also a third reason given for the current boom, one you’ve heard before: Technology.
JOHN TAYLOR, Stanford University: We’ve had biotech, the computer technology, information technology. What’s happening now is that technology is being used more in the marketplace to raise productivity.
PAUL SOLMAN: John Taylor, Bob Dole’s economic advisor in 1996, thinks now, as he did then, that an economy driven by new technologies like the Internet could grow an extra 1% a year, which may not sound like much, but would actually imply a new economy of sorts.
JOHN TAYLOR: It can make the difference between doubling the income in a generation and just increasing it by 25% or even smaller. So those small changes in growth rates have tremendous implications for Social Security, for our children– huge difference.
PAUL SOLMAN: Robert Gordon, however, a productivity expert, spoke for many here in thinking high-tech progress has actually been oversold. According to his studies, most productivity advances have been confined to the computer industry itself.
ROBERT GORDON, Northwestern University: Every time I go to a convention, I walk down the hall, and I look to my left, and I look to my right, and a human being is making a bed, not a robot, not R2-D2. There are so many jobs left in this economy that have to be done by human beings, and that’s the basic reason why computers have not revolutionized productivity.
PAUL SOLMAN: To Gordon, the current economic boom is not due to freer markets or more active government or high tech, but an unusually stable economic environment brought on by the good fortune of low inflation.
ROBERT GORDON: The Asian crisis helped us, because it made imports cheap, and that held down inflation. Until this year, oil prices were low, and that held down inflation. We had a medical care revolution, and that held down medical care inflation. And finally, they got rid of some inflation by remeasuring it and improving the measurements in inflation, thanks to some economists who told them to do that. And they did.
PAUL SOLMAN: Now, since the Asian crisis seems to have passed, and oil and medical prices are rising, Gordon’s list makes one wonder if our luck isn’t about to turn sour at long last. And indeed, several notables at the conference thought it might be. Americas first Nobel Laureate in economics, Paul Samuelson, for instance, raised the specter not of inflation, but instead, of sudden and massive disinvestment in the US economy.
PAUL SAMUELSON: We’re a me-me-me generation. We’re borrowing the savings of every nation in the world. We’re controlling our inflation by the excess capacity of everybody in the world. And so we’re piling up a big tab. Now, I may think we’re too big to have a run on us. You may think that. But it’s possible that God does not.
PAUL SOLMAN: By “run,” Samuelson basically means foreign investors taking their money out of the economy, selling our bonds and stocks, thus driving them down in value.
PAUL SAMUELSON: The point is that the prosperity on main street, which is so patent and obvious and solid, begins to have another look when the money is going the other way.
PAUL SOLMAN: In the meantime, the US and perhaps much of the world economy, is being propelled by consumer spending, spurred by the millionaire-making stock market. If there’s a new economy, said Karl Case, somewhat sarcastically, this is it.
KARL CASE, Wellesley College: Probably the thing that sums it up the most is that my house painter won’t come to work on my house because he’s made $75,000 in the last year day trading.
PAUL SOLMAN: So this is a new economy, a new world, and we’re all incredibly prosperous, right?
KARL CASE: Right.
PAUL SOLMAN: You don’t believe that?
KARL CASE: No.
PAUL SOLMAN: Do you think it’s just going to come to a halt at some point or slow down?
KARL CASE: The one thing you can say about bubbles is that there is nothing in all of economic theory that predicts when they’ll end or how high they’ll go before they fall back to earth.
PAUL SOLMAN: To many here, a fall was more a question of when than if. But to others, like this group pushing for minorities within economics, the reason there’s no new economy is that we’re still faced with so many problems from the old one, like persistent inequality; not that there haven’t been improvements here too, Cecilia Conrad reported.
CECILIA CONRAD, Pomona College: It has abated a little in the last five years, in terms of a slight drop-off in poverty rates, some indication of less inequality in family incomes. It’s not that wages are going up necessarily– more people at the bottom– but more of them are finding jobs, and in some cases multiple jobs at those low wages. So it’s translated into an increase in income.
PAUL SOLMAN: Yes, Willene Johnson concurred, consumers feel better across the economic spectrum, but…
WILLENE JOHNSON, Federal Reserve Bank of New York: If you take some objective measures of social welfare, not just “how do you feel?” But “how do you live?,” We see no significant decrease in the number or proportion of children living into poverty. We also have continued concern about the number of children who have access to health care.
PAUL SOLMAN: Moreover, according to Richard Santos…
RICHARD SANTOS, University of New Mexico: In New Mexico, about half of the children being born are being born into Medicaid or delivered by Medicaid resources.
PAUL SOLMAN: Half?
RICHARD SANTOS: Half, yeah. This notion that a rising tide raises all boats hasn’t been the case. In our state of New Mexico, Walmart is the largest private sector employer now. And so we still continue to have a 20% poverty rate for the state.
PAUL SOLMAN: To William Darity, recent studies suggest this economy is still slowed down by the past rather than hitched to something brand-new.
WILLIAM DARITY, University of North Carolina: One of the interesting things that we’re discovering in recent work that we’re doing on discrimination, on disparities in education is that these effects or differences carry over across generations. And so a gap that might exist that’s between blacks and whites, or between Latinos and other whites who are not Hispanic, is something that can persist because of the adverse consequences for the more recent generation of the experiences of their parents and grandparents.
PAUL SOLMAN: But despite such worries, for most it was an oh-so-buoyant economy here.
SPOKESPERSON: University of Albany. State University, New York.
PAUL SOLMAN: With teaching jobs more plentiful than they’ve been in years, foreign students flocking to our shores to get their PhD’s and then jobs in the US as economists. We thought we’d give the last word to Robert Gordon, the productivity maven, who thought the current expansion would continue for a while, but wasn’t willing to predict a new economy or anything long-term, for that matter. Because he said simply:
ROBERT GORDON, Northwestern University: Economists are lousy forecasters. We all stay in universities and leave it to people who we don’t respect to make forecasts a year or six months ahead. They make the money and we look backwards; we look at the past and try to understand the past. Serious economists don’t try to forecast.
PAUL SOLMAN: Because?
ROBERT GORDON: You can’t do it. Too many unexpected things happened. In the 70’s, we had the oil shocks. Everything turned bad. None of that was. In the 90’s we had a whole bunch of things that turned good all at once, and that had not been predicted and expected.
PAUL SOLMAN: And couldn’t have been.
ROBERT GORDON: Most of it couldn’t have been.
PAUL SOLMAN: We couldn’t have put it better ourselves.