Three years ago, Edupage (Feb. 21, 1995) noted my comments: "There is an internal systematic contradiction in that our whole method for reporting economic change has no ability to incorporate necessary changes in the fundamental definitions themselves . . . Strong productivity gains are largely in information, a third, unmeasured economic sector in addition to the measured production and service sectors."
The role of "legacy economists" in documenting a so-called "productivity paradox" with regard to the return on capital investments in information technology has confused everyone. As one information technology (IT) professional at Indiana University laments, "It's just plain embarrassing for an IT professional to hear that an investment in long-term bonds would provide a higher return than investments in IT. . ." But these economists share one major "blind spot" in conducting their analyses: their crippling reliance on the U.S. Bureau of Labor Statistics' SIC (Standard Industrial Classification).
By tying their economic conclusions to this rigid and inflexible listing of job categories, "legacy economists" haven't even tried for 25 years to measure the dynamics of today's "real world" information economy. Instead, they have relied on government measurements using faulty baseline (frozen SIC) categories resulting in faulty benchmark statistics of growth (now properly challenged by the "new economy" papers). Then, avoiding the challenges of original research, they've relied on taking in each other's wash, so to speak, by declaring "a survey of the literature does/or/does not show. . ." This is at the core of their failure to understand the New Economy.
Been There . . . Done That
A recently published economic analysis carefully confirms what I learned while working for New York City over 20 years ago: Government statisticians simply cannot define what they are measuring. In the late 1970s, I was involved in policy discussions and negotiations on communications industry innovations in New York City. I was able to determine with certainty, first-hand, that the NYC Economic Development Office, the Rand Corporation, and the Bureau of Labor Statistics (U.S. Commerce) very reluctantly recognized and acknowledged that the SIC data collected could not measure innovations and initiatives in the rapidly changing communications industries, because in their terms "changing the definitions" would not allow the historic trend analysis required of traditional economic studies.
The "Gloom And Doom Boom" of the Info Tech Stock Market
The mythical story of the "slowing" annual sales of personal computers, perpetuated by faulty press reports and academic citations repeated hundreds of times (and invariably characterized as "PCs Slump Again") has been known in the PC trade as "the Gloom and Doom Boom." Actually, sales during the decade between 1984 and 1994 were substantially increasing over previous periods, but the "acceleration," i.e., the percentage increase in the growth, had slowed. Unit shipments actually were substantially higher than before. The daily business news commentary and analysis relied on faulty economic reports and headlines of "Slowing Sales" that skewed and distorted the stock market with lagging news and interpretations that seriously distorted the public information base. For example, let's cite Thomas Landauer's book The Trouble With Computers (1995), where he illustrates that faulty assumption best: "The growth of sales of computers has diminished greatly in recent years. The market is softening. Information systems budget increases in the 1990s are down substantially from levels in the last half of the 1980s."
In fact, in a recent New York Times interview, investment expert Michael Murphy offered a reliable thumbnail description of today's market forces that most academic economists miss: "More than 90 percent of analysts are still covering the old economies, either the old mass-production economy, which is where most of the big, comfortable corporate names are, or the even older industrial economy." In fact, he says, the technology sector is growing "about 20 percent a year, right now. And because it's been doing that for a while, it's up to about 15 percent of the total economy."
Implied Contract?
But isn't there an implied contract requiring academic economists to properly frame the questions surfacing and surrounding the New Economy? To my knowledge, no such responsibility has been evident, with scholars instead citing "study after study that show no increases." Such academic citations invariably turn out to rely on the well-worn refrain, "no evidence found in the survey of the literature," or a variation on the hypothesis that "New Economists have not proven their claim of substantial increases."
Prof. Thomas W. Hazlett, at the University of California, Davis observed in a recent discussion on telecommunications regulation that ". . . academic freedom allows each department to essentially define its own system for evaluating scholarly research (instead of . . .outside agencies). The incentives are for academics to maximize utility (prestige, marketability, grantsmanship) within their respective disciplines, and this leads to a systematic over-investment in certain intellectual pursuits, under-investment in others."
Hazlett noted that some indeed have "stumbled on to an embarrassing realization that economists have largely failed to deal with: The New York Times, Wall Street Journal, and Washington Post article databases which quantify the supply of "publicly available information" in financial event studies are poor proxies. Industry-specific information is widely available faster, and in far greater detail, than in general interest daily newspapers."
The New York Times, on November 18, 1997, does nicely but uncharacteristically declare the new "Information Technology Field Is Rated Largest U.S. Industry" - "The field of information technology-often defined as both computing and telecommunications - is [now] the nation's largest industry, ahead of construction, food products and automotive manufacturing, the study concluded. . . This represents perhaps the most comprehensive statistical portrait to date of what is called the new economy - populated by high-technology companies that generate new wealth, new work practices and new challenges in public policy. . . For purposes of the new study, telecommunications was grouped with computer hardware and software as a single field mainly because the technologies are so closely linked-and becoming more so, as the nation's communications system [legacy analog] makes the transition to the digital technology of computing."
This article finally introduces a summary review of what has been sorely lacking over the past 25 years. The statistical description of this "New Economy" is put forth and finally packaged by a trade group contesting the traditionally accepted, but lagging, economic statistics. It's up to the next generation of New Economists to examine the assumptions and clarify the premises further.
Glenn is a co-founder and a trustee emeritus of the American Museum of the Moving Image and has lectured extensively on the general topic "Environmedia: Our Rapidly Changing Media Environment." [email protected]