THE NEW ECONOMY
It works in America. Will it go global?
It seems almost too good to be true. With the information technology sector leading the way, the U.S. has enjoyed almost 4% growth since 1994. Unemployment has fallen from 6% to about 4%, and inflation just keeps getting lower and lower. Leaving out food and energy, consumer inflation in 1999 was only 1.9%, the smallest increase in 34 years.
This spectacular boom was not built on smoke and mirrors. Rather, it reflects a willingness to undertake massive risky investments in innovative information technology, combined with a decade of retooling U.S. financial markets, governments, and corporations to cut costs and increase flexibility and efficiency. The result is the so-called
New Economy: faster growth and lower inflation.
Most corporate executives and policymakers in Europe and Asia, once skeptical about the U.S. performance, have taken this lesson to heart. There are still widespread misgivings about the U.S. model of free-market capitalism. But driven by a desire for faster growth, combined with a fear of being left behind, the rest of the world is starting to embrace the benefits of a technology-driven expansion.
But a global New Economy will not happen overnight. True, spending on technology, the most visible part of the New Economy, while not yet up to U.S. levels, is on the rise everywhere. Semiconductor sales were up 17% worldwide in 1999, while the number of Internet users in Western Europe and the Asia-Pacific region is expected to more than double over the next five years (chart). Even in a developing country such as India, the software industry is growing at a rate of 50% to 60% annually.
OLD VIRTUES. But the worldwide proliferation of mobile phones and Web accounts by itself will not bring about a more vibrant global economy. What are also needed are dramatic changes in core institutions that will translate technology into faster productivity growth. That means financial markets better able to fund innovation, more flexibility in corporations and labor markets, a faster pace of deregulation, and increased competition (table). ``The New Economy is built on old virtues: thrift, investment, and letting market forces operate,'' says Treasury Secretary Lawrence H. Summers.
There are signs that the process of change has started. With growth picking up in Europe, and Asia emerging fro...
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...dents accounted for two-thirds of the growth in science and engineering doctorates at U.S. universities. Most of them planned to stay and work in the country.
Like many other aspects of the New Economy, opening up the doors to foreign workers won't come easily in many countries. But the genie is out of the bottle--now that the U.S. has shown that faster growth is possible, no country will be able to resist it. In the end, the benefits will be well worth the pain.
The Road to the New Economy
Here's what countries must do to get a high-productivity, low-inflation economy
BOOST INVESTMENT SPENDING on information technology as a share of GDP
RESTRUCTURE CORPORATIONS to cut costs, improve flexibility, and make better use of technology
OPEN FINANCIAL MARKETS to direct capital to the best uses
DEVELOP VENTURE CAPITAL and IPO markets to aid innovative companies
ENCOURAGE AN ENTREPRENEURIAL CULTURE and make it easier to start new businesses
INCREASE THE PACE OF DEREGULATION especially in telecom and labor markets ADJUST MONETARY POLICY to the realities of the New Economy by waiting for inflation to appear before raising interest rates
When President Reagan took office, the U.S. was on the back end of the economic prosperity World War 2 had created. The U.S. was experiencing the highest inflation rates since 1947 (13.6% in 1980), unemployment rates reaching 10% in 1982, and nonexistent increases GDP. To combat the recession the country was experiencing, President Reagan implemented the beginning stages of trickle down economics – which was a short-term solution aimed to stimulate the economy. Taxes in the top bracket dropped from 70% to 28% while GDP recovered. However, this short-term growth only masked the real problem at hand.
despite the vanishing jobs Americans’ productivity is on the rise and Americans still lead the
The United States is the leading economy across the globe and experienced several tribulations in the recent past following the 2008 global recession. Despite these recent challenges, there are expectations among policymakers and financial experts that the country will experience solid economic growth. Actually, financial analysts have stated that the U.S. economy will be characterized by increased consumer spending, increased investments by businesses, reduced rate of unemployment, and reduction in government cut. Some analysts have also stated that the country’s economy will strengthen in 2014 with an average of 2.7 percent or more. However, these predictions can only be understood through an analysis of the current macroeconomic situation in the United States.
Miller, Derek D Essay: Brave New World and the threat of technological growth Vol 3 2011.Print
He uses successful companies from the 80’s to today such as Microsoft, Apple, and Google. He explains that “they share a strategy that is becoming standard for success.” (Zakaria 462). Global business or taking business outside of the United States counts for a large sum of corporation’s revenue. Zakaria describes that technology itself is the reasoning behind why the U.S. economy has shifted. He elaborates on this shift, and says “Technology and globalization are working together at warp speed” (Zakaria 463) alluding to the futuristic television series “Star Trek”, which just so happens to parallel with him talking about the future of the economy. He brings other developing countries in to the mix saying “China and India have added literally hundreds of millions of new workers to the global labor pool, producing the same goods and services as Western workers at a fraction of the price.” (Zakaria 463). Zakaria switches his tone yet again to reflect optimism for America. Zakaria recognizes the large growth and now need for technology and globalization in America and let’s his readers know that this change and shift in our economy may have the economy down, but the shift isn’t a bad thing and it isn’t what is keeping people down. He encourages his audience to see that what has happened can’t be stopped. Then he asks a rhetorical question that is both simple and to the point. “So what is the solution?” (Zakaria
The economy works in a bunch of strange ways. Changing all the time. This is because of leading and lagging indicators. Indicators can control the economy progresses or get worse. Leading indicators, defined as a change prior to economic adjustments and, as such, can be used to predict future trends. This would include stock market, inventory levels, and the housing market. Lagging Indicators reflect the economy’s historical performance and changed to these are only identifiable after and economic trend or pattern has already been established. The government has an interesting way of using these indicators to their advantage, helping the economy so it doesn’t grow too fast or grow too slowly. This helps the economy so we don’t fall so far that it will be hard to get back up. We did this once during the great depression when there was no money in the economy, businesses were shutting down which left the government to pay the businesses to keep it open. Which, of course, put us into a debt. Us, as american citizens are “asked” to pay that debt off through our consumer spending and paying taxes. Are we on our way towards this? I do not believe so. In this essay, I will show you the reasons I believe that the economy is getting better through 2 leading indicators and 1 lagging indicator.
“Our Future Selves” by Eric Schmidt and Jared Cohen construct views on countries’ technologies that changes the world on a daily basis. Conversely, technologies reconstruct countries in various simpler ways to live throughout economic trends. Furthermore, the quality of life is massively changing with new technologies. Consequently, wealthy countries are viewed differently from poor countries towards technological advantages. Ordinarily, technologies have made the difficult obstacles so much easier than just by hand. Industries have utilized the advanced technologies to provide huge manufacturing productivity. Moreover, Eric Schmidt and Jared Cohen have some very compelling reservations within their article, “Our Future Selves”, on the trends
It was said that once-in-a-century advances in technology are transforming our economy. The computer chip is doing for today's knowledge economy what electricity did for our industrial economy a century ago. Synergies in technology are driving acceleration in productivity growth that enables us to grow faster with less inflation. Economic progress is speeding up; the speed limit is rising. “Real GDP growth has averaged 4 percent for the past four years, with declining inflation. This almost doubles the 2 percent to 2.5 percent not long ago considered the maximum noninflationary potential. But we've been growing faster than potential and sustaining the unsustainable for four years and counting. Sounds odd, doesn't it? Our faster output growth is based primarily on faster productivity growth and secondarily on faster labor force growth”. Productivity growth now appears to be at least 2.5 percent and rising. An increase from 1 percent to 2.5 percent is an increase of 150 percent, a huge jump with profound implications if sustained. Last year was encouraging. Productivity raised over 3 percent for the year and over 5 percent in the second half. It was said that the United States entered the 21st century with its economy on a roll. GDP growth averaged more than 3 percent a year in the 1990s. The country created 17 million jobs, driving unemployment down to a 30-year low of 4.1 percent. In the 1999-2000 the economy wasn’t doing so bad the unemployment rate was down, there were more jobs available, and production was doing well. When 2001 stated and even before then the economy was going down, many people were being laid off and so on. Then it happened the September 11th attack on the US, this attack has left the
In the near to distant future we will see more than just new technology. If the usa follows its current economic trends we will almost certainly see quite higher minimum wage than what we are used to these days. Because of the fact that inflation raises the amount things cost every year. So companies and state governments and even our national government has to raise the minimum wage. Slightly almost every few years so in our near and distant future expect to find much higher minimum wage than we see and get paid today.
...nd again resulting in creation of bigger markets and pulling large competitors and creating new job opportunities, but the problem is with undefined factors like outsourcing, lack of skill development in respect with technology advancement. Technology advancement may be causing huge impact on employment but it is also making human living better. Technology as became part and parcel of our life so we can’t think of life without technology, but to make sure that the same does not harm our livelihood we should keep in track and sharpen and hone our skills with advancement of technology. (Brynjolfsson & McAfee, 2011)
...mendation, a mixed policy approach should be initiated. This comes from the fiscal and monetary policy perspectives. Therefore, expansionary policies should be able to enhance an increased aggregate demand which will offer adequate total revenue on the demand side of the economy. On the supply side, the target should be to initiate policies that stimulate production at low cost. One of the forces that have been identified in the Theory of Effective Demand pioneered by Michal Kalecki and championed by Keynes and his followers is technology. By agitating for better and innovative constructive technologies, the US can be able to remedy the Discouraged Worker Effect situation expressed in Izzo (2013). However, this is seemingly a long term strategy. Being a follower of Keynes, I believe Keynesian policies where the government is fully involved will remedy the situation.
Businesses are now able to approach overseas markets, they are no longer confined to their areas of establishment. Business today is inextricably intertwined with technology, from the smallest home office, to a multinational corporation with multiple monolithic legacy applications. It is impossible to be in business today without confronting the issues of technology. The way we do business today is different than 30 years ago. Technology has evolved around the areas of telecommunications, travel, stock markets, shipping and even around our daily lives.
This change brings about new product and services thereby creating new avenues of wealth creation in an economy. For example, with advent to online market places, goods and service from different regions can easily be advertised, paid for, sold and shipped easily providing different levels of employment and income models such as for shipping companies, mobile money processing service providers, internet connectivity companies among other opportunities. This diversified creation of opportunities increases production and boosts an economy’s real GDP. In this way, the opportunity cost of the above example is increased cost of training of workers for the new skills required to perform above tasks. This said, the advantages of technological change out-weigh the associated training costs. Consequently, governments and economists support technological change despite risks of structural
...ware and Software developers and Web designers are just some of the many new employment opportunities created with the help of IT. Probably new more jobs to come in more years.
However, despite the long-term economic growth, technological progress is very important, and even if we...