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Q:Do you think the increased productivity and activities related to the so-called "New Economy" can avoid a "hard-landing"?
LRW: For the most part, the increased productivity simply results from operating the economy nearer to full capacity-it is just a residual that falls out of the equation that relates GDP per capita to the employment rate multiplied by output per employee. When GDP grows robustly, that is, faster than employment, measured productivity rises. Most of this talk about a "new economy" is just nonsense. Neither GDP growth nor productivity growth has been unusually high in this expansion, rather, they have simply returned toward long-run US averages. Thus, while they are unusual compared with the poor performance of our economy after 1973, they are not unusual if one takes a longer period for comparison. Certainly, things don't look unusual when compared with the so-called "Keynesian" era-the three decades after WWII. In an important article, economist Robert Gordon has shown that the increased productivity can be entirely attributed to a short-term cyclical effect plus increased productivity in the computer manufacturing sector. Surprisingly, there has been no "spill-over" of "new economy" productivity to other sectors. What this means is that any "new economy" effects on productivity have been limited only to the production of computers, with no benefit accruing to the sectors that actually use computers. That is a very strange result. However, what this tells me is that the current expansion is not at all unusual, that it has nothing to do with the "new economy", and, hence, that the "new economy" is not going to save us from a hard landing.