The Economist: Don’t say “new economy”

Wall Street fears that America’s economic slowdown may turn vicious. So, apparently, does Alan Greenspan, who cut interest rates unexpectedly this week. Is it all over for the new economy?

AS REVERSALS in market psychology go, this ranks among the most spectacular in decades. Only yesterday, or so it seems, Wall Street equity analysts almost unanimously acclaimed a new economic paradigm. Out with those old equity-valuation models, out with fusty concerns about earnings (actual or predicted), out with the business cycle; in with network effects, burn rates and global scale. Forget, ugh, prudence: caution is the new recklessness. Nowadays, as one representative member of the breed then put it, the only danger is to be out of the market.

Well, for that shrewd advice (as Nasdaq tottered at around 5,000), many thanks. For all those “buy”, “hold” and “accumulate” recommendations on stocks that cost $100 last year, and now cost $1.50, thanks a lot.

The new-economy claim, sensibly stated, is a theory about the medium and longer term, not about fluctuations in the business cycle. Long-term prospects in America and the rest of the world are driven by productivity. As Nasdaq soared, so did the belief that the trend of productivity growth has shifted permanently higher: over the next decade or two, many believed, productivity might grow more than twice as fast as it did in the 25 years to the mid-1990s. If new technologies really could boost growth in productivity so much, they would go far to justify the earlier strength of Wall Street as a whole—though most tech-stock valuations were beyond the pale even on this bold assumption. Then along came the tech-stock crunch. Somehow, this shifted thinking on the long-term question. Many now appear to believe that the “new economy” was a myth all along.

No one talks these days about the “Goldilocks economy”, the demise of the business cycle or the miracles wrought by the “new economy”. The Times 2001-01-05

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Rolf Englund på Nationalekonomiska Föreningen 97-10-02

SvD om Moses och slutet på konjunktursvängningarna

Klas Eklund: Under en period blundade många i Europa och en rad ekonomer (däribland jag själv)
hävdade att Reaganomics var ett oansvarigt tänkande. Men vi hade fel.
USA har ryckt åt sig ett stort försprång och har världens mest framgångsrika ekonomi.

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