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April 15, 2002
CONTACT: David Fish
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IT Sector Key to Economic Resurgence
Jorgenson Paper Analyzes '95-'99 Boom, Credits IT

WASHINGTON, D.C. - The future of the American economy is linked in no small measure to continued growth and innovation in the information technology (IT) sector, according to a new paper released by The Progress & Freedom Foundation. Based on an address by Harvard Economist Dale W. Jorgenson, “American Economic Growth in the Information Age,” it analyzes the roots of America’s economic resurgence from 1995-1999, concluding that the dynamic that helped work wonders then – a substantial decline in IT prices fueled by cheaper and increasingly sophisticated semiconductors – can continue to do so in the future, as long as policymakers understand its crucial role.

“A consensus is building that the remarkable decline in information technology (IT) prices provides the key to the surge in American economic growth,” Jorgenson told attendees of the Foundation’s 2001 Aspen Summit. “The IT price decline is rooted in developments in semiconductor technology that are widely understood by technologists and economists. This technology has found its broadest applications in computing and communications equipment, but has reduced the cost and improved the performance of aircraft, automobiles, scientific instruments, and a host of other products.”

“The investment boom of the later 1990's was not sustainable, since it depended on growth in hours worked substantially in excess of labor force growth,” Jorgenson said. “Nonetheless, growth prospects for the U.S. economy have improved considerably, due to enhanced productivity growth in IT production and rapid substitution of IT assets for non-IT assets in response to falling IT prices.”

How big of a force will this dynamic remain and for how long? “Although the fall in semiconductor prices has been projected to continue for at least another decade, the recent acceleration may be temporary,” he said. What can policymakers do to help? “An understanding of the role of IT is crucial to the design of policies to revive economic growth and exploit the opportunities created by our improved economic performance,” he said.

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.



The Progress & Freedom Foundation