New Economy

Created: 2000-04-26
Last Modified: 2000-5-04
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New Economy Forum Briefing

J. Bradford DeLong
http://www.j-bradford-delong.net/
delong@econ.berkeley.edu

May 2000

 


Why Now? Three Factors That Together Have Made Our Age the Age of the Computer Revolution

  • Factor 1: The end of the Reagan-era federal budget deficits
    • The end of the Reagan-era federal budget deficits has meant that an extra $400 billion a year of finance is available for investment.
    • Information technology consumes more than half of new investment: in the alternative world in which Reagan's policies were continued, information technology-investment is lower by some $250 billion a year.
    • $250 billion a year less of investment in information technology means both a lower capital stock and less experience at learning how to use information technology.
    • At the start of 1995, Larry Summers asked: "It's good that deficit reduction has given us an office automation boom, but is there good reason to think that such a boom will have large economic benefits?" The answer is "yes."
  • Factor 2: The internet and the open-sourcing of http
    • Early in this decade, economist and entrepreneur Charles Ferguson concluded that the online services industry was fundamentally broken
      • lack of protocols for interconnection
      • domains of information restricted to the information offered by a single provider
      • the fundamental mistake: try to make money by charging a premium price for your premium service...
    • Then Tim Berners-Lee of CERN open-sourced his hypertext protocols--http and html--and the NCSA team built Mosaic, the first browser to display images in-line.
      • Never has any trans-national public investment in science and technology yielded such a high social rate of return
    • And the world changed.
      • What if we were still in the world of AOL/compuserve/delphi/DJNR/lexis-nexis/corporate nets--all with incompatible protocols?
  • Factor 3: the fruits of telecommunications deregulation
    • Nobody imagined that the existing voice network would carry us so far.
    • Suppose Baxter and company not broken up AT&T in 1984--and AT&T had continued to charge premium prices for data lines?
    • It was competition and interconnection, Stanford professor Francois Bar argues, that allowed the burst of experimentation that created our present broad menu of telecommunications-based data services.

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Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax
delong@econ.berkeley.edu
http://www.j-bradford-delong.net/

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