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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: zsteve who wrote (67595)	9/18/1999 11:50:00 AM
From: zsteve	Read Replies (1) \| Respond to of 132070

excelent article about productivity and new economy: ==================================== A New Economy? Not So Fast Productivity and wage gains trace to '98, when oil was cheaper By John A. Tatom interactive.wsj.com ...... At best the U.S. has enjoyed just over one year of good productivity growth (1998 and early 1999), hardly sufficient to explain the eight-year expansion. Most of that surge was due to 1998's lower oil prices. Now that oil prices have rebounded, it will become clearer that the U.S has not escaped the post-1973 plummet in productivity and economic growth. In view of that, policy makers are not likely to gamble that the coming rise in inflation is oil-related and therefore temporary. So significantly more monetary restraint is likely. And as unemployment and inflation rise, the New Economy will look pretty much like the old one. Productivity (measured by business-sector output per hour) rose 2.4% in 1998 and climbed 2.8% in the year ended in 1999's first quarter, compared with only 1.2% from 1973 to 1997. The boost to productivity meant that hourly compensation adjusted for the consumer price index rose 2.7% in 1998, the biggest rise since 1986 and well above its otherwise near-flat performance over the previous 24 years. It's not likely, however, that this measure of real wages is finally showing a restoration of the potential for economic growth. Last year's decline in oil prices could not continue for long to boost productivity and hold down inflation; such a decline's impact on output and prices is relatively swift, and it then disappears unless the process is repeated and oil prices fall again by as large a percentage. Because oil prices have already returned to the highs reached at the end of 1997 -- West Texas intermediate crude has shot to over $20 a barrel from a low of $11.28 in December 1998 -- the benefit will not simply disappear, but be reversed. The effects on the economy of changes in oil prices are fairly well known, thanks to experiences since the 1970s. ...... Short-lived Capital Believers in a New Economy point to a surge in business investment as a source of the higher growth pace. After all, business investment rose sharply and to record levels after 1995. But sufficient capital formation to support economic growth has nearly disappeared. All of the rise in this investment has been concentrated in very short-lived capital -- computers and related equipment -- so higher investment has been necessary simply to keep pace with a faster pace of depreciation of a shorter-lived capital stock. (All the more true for software "capital," which depreciates and is scrapped even faster than hardware.) The faster pace of investment has not been reflected in the growth of capital stock, which is what determines the contribution of capital to productivity and to real wages. ......