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Re-evaluating the new economy

Free Market Foundation

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Recent weak economic growth in the United States has prompted some economists to question the theory that information technology has ushered in a new era of strong and nearly unbroken productivity gains – such as characterised the period 1995-2000.

The consulting firm McKinsey & Co. is among the sceptics:

  • It concludes that the strong productivity gains of the late 1990s were concentrated in only 30 percent of the private sector – aand are likely to be whittled away in coming months and years.
  • The U.S. Labour Department had originally pegged the productivity growth rate at 2.8 percent a year in the late 1990s – a figure it later lowered to 2.5 percent.
  • But McKinsey economists believe the long-term rate will fall back to about 2 percent.
  • Productivity growth during the period 1973-95 averaged about 1.4 percent.

    McKinsey says nearly all the surge in the 1995-2000 period was concentrated in six sectors – retail, wholesale, telecommunications, securities, the assembly of computers and the manufacture of semiconductors.

    Source: Louis Uchitelle, Deepening Wrinkles in the New Economy, New York Times, October 17, 2001.

    For NY Times text http://www.nytimes.com/2001/10/17/business/17PROD.html
    For more on the Economy http://www.ncpa.org/iss/eco/

    FMF\23 October 2001

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