The New Business Cycle: The Impact of the Application and Production of Information Technology on U.S. Macroeconomic Stabilization

By Fleming, Martin | Business Economics, October 1997 | Go to article overview

The New Business Cycle: The Impact of the Application and Production of Information Technology on U.S. Macroeconomic Stabilization


Fleming, Martin, Business Economics


The performance of the U.S. macroeconomy in 1997 has been nothing short of idyllic. Now in the seventh year of expansion, the U.S. economy continues to surprise analysts. This continuing stellar performance has inevitably raised a host of questions. How long can the expansion continue? Has inflation been permanently suppressed? Has the long-term sustainable noninflationary real growth rate increased?

While it is too soon to provide a definitive explanation for this strong performance, the need for both private and public decisionmakers to anticipate the future course of economic events requires at least a tentative explanation. The development of new explanations is especially important when one considers that the past fifteen years have been a period of average growth interrupted only briefly by a recession of moderate depth and duration in 1990. Such economic performance inevitably raises the issue of how sanguine one's view of the future should be.

Policymakers are, of course, correct to be cautious about the emergence of new eras. But a chorus of commentators cite fundamental changes in the U.S and global economies that have and will alter economic performance over both the short and long terms. In particular, increasing opportunities for the application of information technology (IT) solutions to business and policy problems as well as the dramatic increase in the employment of human and physical resources in the production of IT solutions may be one of a set of factors contributing to a fundamental alteration of the global economy.

For more than a decade, economists have attempted to measure the impact that IT has had on productivity, especially in the service sector. The purpose of this essay is to take a very different point of view and consider the impact that the increased application of IT solutions may be having on the U.S. macroeconomy. In contrast to the more narrow focus that economists have taken in the past with respect to the impact of IT on productivity, a much broader view is warranted. While its very possible that the increased application of IT solutions on the U.S. and global economies has been both broad and deep and has affected the performance of the economy both over the short term and the long term, this paper considers only a single aspect of these potential changes. In particular, the hypothesis is advanced that the nature of the business cycle has changed, particularly in the United States, in part as a result of the dynamics of both the production and application of IT.

EXPLANATIONS OF THE IMPACT OF INFORMATION TECHNOLOGY

Theories related to the impact that IT has had on the U.S. and global economies have generally fallen into two categories:

1. The benefits of IT are due to the ability of the economy to realize stronger noninflationary growth over the short term.

2. The benefits of IT are due to stronger long-term growth, irrespective of how events may unfold over the course of the business cycle.

The capacity of the U.S. and global economies to experience stronger year-to-year growth over the course of the business cycle is, of course, at the heart of the problem facing macroeconomic policymakers. Recently many influential business leaders, journalists and public officials have suggested that the maximum sustainable growth rate of the U.S. economy has increased. Over the past twenty years or so, it has been widely believed that if economic growth continues above a rate of 2.5 to 3.0 percent for a prolonged period, high inflation and a correction in the form of a deep and sustained recession would result. However, during the past year or so an alternative view has emerged that asserts an increase in the maximum sustainable noninflationary growth rate.

The new view, which Krugman calls the New Paradigm, claims that the increased application of IT and the increased volume of international trade and investment have altered the fundamental capacity of the economy to grow in an noninflationary way. …

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

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.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

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

The New Business Cycle: The Impact of the Application and Production of Information Technology on U.S. Macroeconomic Stabilization
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?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access 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

    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.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.