U.S. Economic Growth in the Information Age

By Jorgenson, Dale W. | Issues in Science and Technology, Fall 2001 | Go to article overview

U.S. Economic Growth in the Information Age


Jorgenson, Dale W., Issues in Science and Technology


We're beginning to understand what fueled growth in the late 1990s, but there is much remaining to be explored.

The resurgence of the U.S. economy from 1995 to 1999 outran all but the most optimistic expectations. It is not surprising that the unusual combination of more rapid growth and slower inflation touched off a strenuous debate among economists about whether improvements in U.S. economic performance can be sustained. This debate has been intensified by the recent growth slowdown, and the focus has shifted to how best to maintain economic momentum.

A consensus is building that the remarkable decline in information technology (IT) prices provides the key to the surge in U.S. economic growth. The IT price decline is rooted in developments in semiconductor technology that are widely understood by technologists and economists. This technology has found its broadest applications in computing and communications equipment, but has reduced the cost and improved the performance of aircraft, automobiles, scientific instruments, and a host of other products.

Although prices have declined and product performance has improved in many sectors of the U.S. economy, our picture of these developments is still incomplete. The problem faced by economists is that prices are difficult to track when performance is advancing so rapidly. This year's computer, cell phone, and design software is different from last year's. Fortunately, statistical agencies are now focusing intensive efforts on filling in the gaps in our information.

Price indexes for IT that hold performance constant are necessary to separate the change in performance of IT equipment from the change in price for a given level of performance. Accurate and timely computer prices have been part of the U.S. National Income and Product Accounts (NIPA) since 1985. Software investment was added to the NIPA in 1999. Unfortunately, important information gaps remain, especially regarding price trends for investments in software and communications equipment.

Knowing how much the nation spends on IT is only the first step. We must also consider the dynamics of investment in IT and its impact on our national output. The national accounting framework treats IT equipment as part of the output of investment goods, and capital services from this equipment as a component of capital input. A measure of capital services is essential for capturing the effects of rapidly growing stocks of computers, communications equipment, and software on the output of the U.S. economy.

A substantial acceleration in the IT price decline occurred in 1995, triggered by a much sharper acceleration in the price decline of semiconductors. This can be traced to a shift in the product cycle for semiconductors in 1995 from three years to two years as the consequence of intensifying competition. Although the fall in semiconductor prices has been projected to continue for at least another decade, the recent acceleration may be temporary.

The investment boom of the later 1990s was not sustainable, because it depended on growth in hours worked that was substantially in excess of growth in the labor force. Nonetheless, growth prospects for the U.S. economy have improved considerably, due to enhanced productivity growth in IT production and rapid substitution of IT assets for non-IT assets in response to falling IT prices. An understanding of the role of IT is crucial to the design of policies to revive economic growth and exploit the opportunities created by our improved economic performance.

Faster, better, cheaper

A mantra of the "new economy"--"faster, better, cheaper"--captures the speed of technological change and product improvement in semiconductors and the precipitous and continuing fall in semiconductor prices. Modem IT begins with the invention of the transistor, a semiconductor device that acts as an electrical switch and encodes information in binary form. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

U.S. Economic Growth in the Information Age
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.