|
Remarks
of Harvey Bronstein, SGE President at the SGE Conference on
The New Economy
November
17, 2000
Thank you, Nabeel. I can’t begin to tell you how much effort
goes into planning a conference like this. Aside from a part-time
paid manager/bulletin editor, SGE is entirely a volunteer society.
Planning started well over a year ago, and if it weren’t for
the efforts of Nabeel, Rick Fry and our former president Rakesh
Kochhar, we wouldn’t all be here. They’ve put in a terrific
effort and deserve our thanks.
When we first started thinking about this conference, over
a year ago, the New Economy was still pretty new. We also thought
there would be just one New Economy to be concerned about.
As planning proceeded and we started to firm things up, we
discovered that there are many New Economies, and that we were
being inundated with articles, reports, books, and yes, even
other conferences about the New Economy. After a while I got
in the habit of sending Nabeel e-mails about every reported
"sighting" of the New Economy. In the end, of course,
the New Economy is just a device, a way of collecting our thoughts
on the current state of economic change and to reflect on the
dynamism of the U.S. and larger world economy.
For example the Organization for Economic Cooperation and
Development, a group with which I work, asked provocatively
in a current report, Is There a New Economy? What if
there weren’t? Would we have to cancel our conference? Fortunately
their answer is yes, but that it’s newer in the United States
than in other Western countries. Presumably developing countries
are still encased in the Old Economy. Perhaps so are certain
benighted areas of the U.S., not to mention those of us without
Internet access or at least big sport utility vehicles.
Just what does it take to join the New Economy? In September
the Economic Strategy Institute here had a one and-a-half hour
presentation entitled What’s New About the New Economy?
At one and-a-half hours, as compared to our full day, presumably
their New Economy is less momentous. Another Washington policy
shop, the Progressive Policy Institute came out in 1998 with
its New Economy Index. This identifies various quantitative
indicators of the New Economy and tracks their trends. They
followed it last year with a State New Economy Index,
to examine the extent to which the 50 individual states have
taken advantage of the New Economy.
So, is it a New Economy or just a plain old paradigm shift?
Here are six factors that have changed our economic paradigms,
and probably fooled most economists.
First, Higher Sustained Growth Without Inflation.
Unprecedented growth in productivity, which Dr. Shaw will
presently elaborate upon, has enabled us to enjoy growth in a
low-inflation environment, with low unemployment, and at times
even with declining unit labor costs.
Second, International Finance. Worldwide financial
markets integration has occurred faster than anyone anticipated.
Capital moves, exchange rates float, investment surges across
borders, and money flows to where it achieves the highest rate
of return. Money also flows out faster than anyone
anticipated, making the New World Economy a fast and loose kind
of place, as we learned from the Asian financial crisis two
years ago.
Third, Trade Deficits. The U.S. been able to run trade
deficits higher than reasonably thought possible and without
a devalued dollar, all because the world has obligingly sent
us stuff expecting only certificates of financial asset ownership
in return. In the New Economy we shouldn’t obsess, as the press
does, on the trade deficit and current account balances, but
on the exchange between Japan’s Lexuses and U.S. financial
assets.
Fourth, Savings and Investment. A corollary of the
trade deficit is that we’re spending ourselves into hock. If
as individuals Americans cannot save during an expansion, what
will happen during the next recession? We now have the spectacle,
uncomfortable for many, of the government having to save for
us through fiscal surpluses, and of foreigners supplying increasing
amounts of investment to sustain U.S. economic growth. Even
Korea has made significant investments in the U.S.
Fifth, Persistent Long-term Budget Surpluses. How
realistic is it to expect them to continue ad infinitum?
Should we be promoting tax cuts during an expansion? Should
we be proposing permanent increases in federal spending based
on the assumption of permanent surpluses?
Sixth, The End of Business Cycles. Are we due for a
recession, just as the great western forests were due for a
good burn this past summer? The current expansion has no end
in sight. What will it take to end it? Foreigners calling in
our international debts causing a collapse of the dollar, interest
rate increases, a big fall in stock market values, too much
personal debt causing consumer spending at last to falter,
another oil shock …or none of the above?
SGE is keenly interested in your views of how the next
recession will unfold. Please submit your scenario for the next
recession in the blue box at the door by the end of lunch,
which is scheduled to finish at about 1 o’clock. We’ll read
them at our closing session at 4:30. Well, I hope I’ve given
you a few things to consider during our upcoming day’s activities.
I’d now like to introduce Kathryn Shaw, a member of the
President’s Council of Economic Advisers. Dr. Shaw is a labor
economist and has done a lot of work recently on firm-level
management practices and analyzing productivity trends during
the 90’s. As she will explain in greater detail, productivity
growth since the mid-90’s has been without precedent, both
in historical terms and considering that we’re at a mature
stage of the current expansion. This unusually high rate of
productivity growth has been a defining feature of the New
Economy.
Dr. Shaw is on loan to the Council from Carnegie-Mellon
University, where she has had an outstanding career. A prolific
writer, she has published most recently in the Journal of
Political Economy, American Economic Review and Journal of Labor
Economics, which she now edits. A recipient of Carnegie-Mellon’s
economics department teaching award, she has also been head
of the university’s faculty senate and the department of industrial
management. Dr. Shaw has been a research fellow at the National
Bureau of Economic Research and on advisory panels at the National
Science Foundation. No ivory tower economist, her elegant
appearance is deceptive. True to her Pittsburgh roots, she knows
her way around a steel mill and can even tell you what the
different machines do. Please join me in welcoming our keynote
speaker, Kathryn Shaw.
|
