Richard N. Cooper
The 'new economy' has become a buzzword to characterise the American economy, with positive connotations but imprecise meaning. Sometimes it is used to refer only to selected high technology sectors, specifically computers, semiconductors, software and telecommunications. But usually the term implies significant changes in the US economy as a whole. At its most dramatic, the term has been used to suggest that the traditional business cycle has been banished, inflation and unemployment have been brought forever under control, US long-term growth rates have increased significantly, and the highvalue stock market has not been overvalued and indeed will continue to rise. More modestly, it suggests that the structure of the US economy has changed fundamentally, with the implication, inter alia, that monetary and fiscal measures affect the economy differently from the way they did in the past. Finally, the term has been used to suggest that US productivity growth has returned to, or at least toward, the high levels it enjoyed before the slowdown of the mid-1970s.
This paper will discuss the factual bases for conjecturing that the United States might indeed have a new economy, review the controversies and evidence surrounding that claim, and suggest how the emergence of a new economy, if indeed there is one, might affect economies elsewhere in the world, including in the Asia Pacific region.
Four factors in particular suggested that the US economy might have experienced fundamental changes during the late 1990s. The first was the long period of uninterrupted growth following the recession of 1990-91. Gross domestic product (GDP) passed $10 trillion during 2000 and in that year showed the longest period of growth since adequate data have been available, surpassing the previous long recovery of 1961-70. In the 'business cycle', a period of economic downturn historically occurred every three to four years, so this long period of growth suggested that perhaps at least the traditional business cycle had been banished. Various reasons, most emphasising better management of inventories by firms, were advanced to explain this.