Subsistence in the Computer Era
Champlin, Dell P., Knoedler, Janet T., Journal of Economic Issues
The long economic expansion has been widely celebrated as evidence of a New Economy. According to the promoters of the New Economy idea, the technological advances of the computer era are finally coming to fruition. US Treasury Secretary Lawrence Summers called the New Economy "Schumpeterian" due to the "avalanche" of creative destruction (Summers 2000). Fed Chair Alan Greenspan noted that the world's output now weighs less because we are moving to an economy based on information (quoted in Rifkin 2000, 31). New York Times columnist Thomas Friedman wrote of remote Chinese villages connecting to the Internet and buying foreign securities (Friedman 2000). These trends are heralded as evidence of a transformation so sweeping and so significant that it has brought about an entirely new economy.
And yet, it is no longer news that the New Economy is full of risks and pitfalls. Even the champions of the New Economy admit that it is a "winner take all" economy. Far too many Americans, as well as millions in the rest of the world, do not share in the current prosperity. While New Economy participants manage their stock portfolios from their home computers, most of the world's inhabitants struggle to secure even a minimal level of material subsistence.
Is there really a New Economy? Aside from all the hyperbole about global markets and hooking up indigenous peoples to the Internet, what is different? While the advocates of the New Economy enthuse about new technologies and newfound financial wealth from the stock market boom, institutionalists and others have noted the loss of job security, the weakening of the safety net, and the widening disparity in wealth and income. Is the New Economy just the same old economy--only harsher and riskier? In this paper, we address the New Economy idea by asking a basic question: What is an economy? Is there a fundamental difference between the old economy and the new economy, or are the differences more apparent than real? We begin by examining the Old Economy through alternative definitions familiar from economic literature. Next, we reflect on the view of an economy implied by the literature on New Economy. Finally, we offer our thoughts on just what is new about the New Economy.
What Was the Old Economy?
The literature on the New Economy ranges from the wary and distrustful to the positively euphoric. One theme emerges, however. The New Economy is successful. It may be risky, challenging, awe-inspiring, or frightening, but most observers agree that it is successful. In what sense is the New Economy a successful economy? Economists point to indicators such as job creation, the accumulation of financial wealth, and the development of new technologies. In this section, we argue that in order to determine whether the New Economy--or any economy--is successful, we must first establish a standard. What is an economy supposed to do? There have been a variety of answers to this question in the history of economic thought, but we can narrow our focus to two basic points of view:
* The now-dominant doctrine that the purpose of an economy is to produce as much material wealth as possible in order to satisfy unlimited wants.
* The belief that the purpose of an economy is the provisioning of all its members.
Most definitions of an economy fall into one or the other of these two categories. Those who adhere to the first definition will regard the New Economy as wonderfully successful, while the advocates of the second view will come to a very different conclusion. Using the second definition, the New Economy is far from an unqualified success. It is also not new.
There is considerable overlap in these two views of an economy. Indeed, Adam Smith saw no difference at all, since the pursuit of one goal simultaneously fulfilled the other. While the rich may claim the lion's share of an economy's material wealth, the poor are capable of providing for their own subsistence. …