The new economy is really old stuff

By John Cunniff The Associated Press
Thursday May 03, 2001

It may be a bit early to announce a verdict, but today’s New Economy of computers, the Internet and telecommunications devices not even imagined a century ago may not measure up. 

Measure up to what? Well, to the very old economy, the turn-of-the-century economy of 100 years ago. Now that, according to an economic working paper, was really something. 

Economist Robert Gordon suggests that the great inventions of 1860 to 1900 had a more pronounced effect on productivity and living standards – and for many more years – than our much acclaimed New Economy of today. 

In fact, says Gordon, whose analysis is described in a working paper for the National Bureau of Economic Research, our modern inventions pale when compared to the great inventions leading to the first New Economy. 

Those inventions – electricity, internal combustion engine,chemical and pharmaceutical industries, entertainment-information-communications industries and urban sanitation – really did change the world. 

Together, they accounted for much of the upsurge in productivity from 1913 to 1972, and they had a more personal impact on lives. 

In 1882, he points out, only 2 percent of New York City houses had water connections.  

Equally bad, many workers tolerated industrial working conditions worse than those in today’s sweatshops in underdeveloped countries.  

Accidents and disease were common, and life spans were abbreviated. 

Citing the impact of just one invention or discovery, he describes how electricity led to creative new manufacturing processes, improved working conditions and a generation of appliances that reduced manual labor. 

It led to refrigeration and reduced food spoilage, and through the development of air conditioning was catalytic in economic development of the South. And, of course, it greatly reduced stair climbing. 

For years, he says, researchers sought to explain a post-1913 surge in productivity growth, a “big wave” that lasted until the beginning of the 1970s.  

Primary attention, he writes, must be paid to the great inventions. 

By comparison, he writes, the latest surge in long-term productivity gains are incremental compared to the cluster of inventions before and after 1900. 

Moreover, he states that recent productivity gains are largely confined to durable manufacturing, including the making of computers and semiconductors, a sector that comprises just 12 percent of the economy. 

His central theme, he says, “is that computers and the Internet do not measure up to the Great Inventions of the late nineteenth and early twentieth century.” 

Developing the thought, he adds that in this respect, the latest inventions “do not merit the label of ’Industrial Revolution.’ ” 

Yes, say those who defend the honor and reputation of today’s new economy, but you haven’t seen anything yet. It took a century for the full effects of the earlier inventions to be felt. We’ve got a century to go. 

John Cunniff is a business analyst for The Associated Press