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Policy Rules in the New Economy 1 (June 2000)

handle is hein.congrec/cbo8291 and id is 1 raw text is: Policy Rules in the New Economy William D. Nordhaus, Yale University Presentation for the Discussion on the New Economy Sponsored by the Congressional Budget Committee and the Senate Budget Committee June 6, 2000 My assignment is to consider the policy implications of the new economy. The basic message is that, whatever our excitement about the new economy, we need to maintain the old- economy virtues in these new-economy times. The new economy has changed some of the numbers and parameters of our economy, but the rules of good economic management are fundamentally unchanged. This holds for budgetary policy as well as for monetary policy. In my remarks, I will focus primarily on the stance of budget policy. What are the long- term growth prospects? What is the appropriate budget policy in the near term and long term? What are the risks to the economy and the budget? And how should we treat those risks? What is the new economy? We hear a great deal about the new economy. What exactly does this term mean? My definition of the new economy is as follows: The new economy involves acquisition, processing and transformation, and distribution of information. The three major components are the hardware ('computers) that processes the information, the communications systems that acquire and distribute the information, and the software which with human help manage the entire process. Note that some of the so-called new economy is pretty old hat - parts of radio, TV, and telecommunication services date back to the 19th century. The new part is the synergy between computers,, software, and communications. Sometimes, people have in mind what I would call the brand-new economy, which is that sector which produces or uses heavily the Internet. While electronic communication dates from -1-

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