What High Tech Has Wrought
The unprecedented U.S. economic boom of the last half of the 1990s was propelled by investment in digital technology.The unprecedented U.S. economic boom of the last half of the 1990s was propelled by investment in digital technology. Investors sank billions of dollars into dot-com startups. Billions more were invested to solve the Y2K problem. Conversion to the euro required still more billions. Together, these star-aligned events delivered an enormous economic stimulus. Between 1998 and 2000, capital spendings share of the economy was 23 percent higher than at the start of the 90sand 18 percent higher than today. The weakened economy of the past three years represents the inevitable payback for that abnormal bulge. The good news is that the present economic softness has been cushioned by new technology. Sophisticated information systems have allowed companies to manage inventories more efficiently. Today, aggregate nonfarm inventories in the United States, when measured against final sales, are 30 percent lower than the average for the past 40 years. So routine pullbacks in consumer spending should no longer be followed by severe inventory corrections, which worsen recessions. In fact, the brief, eight-month recession from March to November 2001 is the shortest of the nine recessions since World War II.
The bad news is that companies are using new technology to displace higher-cost human effort. Indeed, annual productivity is increasing by 2 percent, the economy is growing at 3 percent and the stock market is recovering, but unemployment is at 6 percent. Granted, thats below the average rate of 7 percent from 1979 to 1994, but its above the 5 percent average of the past nine years. As consumers, we appreciate the lower-cost, higher-quality goods coming from both U.S. and overseas sources. As shareholders, we applaud better corporate returns. But as wage earners, we are distressed at job insecurity and losses.