Yes, There Is a New Economy

...BY DAVID BROOKS This year's tax and budget debate really comes down to one essential question: Is the money going to be there...

...And the Clinton economists were not just playing politics...

...If you measure value added per hour worked, Americans do about 20 percent better than Germans and the French, and 40 percent better than the Japanese...

...If we are, an occasional period of slower growth or even a recession may occur, but the U.S...

...The Bush administration promises fundamental Social Security reform...

...There is a rough historical pattern here...

...economy has been enjoying a productivity surge...

...At first, it was only the computer industry itself that figured out how to use computers to manufacture more efficiently, and productivity gains were mostly confined to the computer and related businesses, some 12 percent of the economy...

...These machines accelerate a jet of water to three times the speed of sound, to cut titanium parts for 747s and make surgical tools to specifications with less than a micron deviation (that's 1/75th the width of a human hair...

...If you are a toolmaker, it's nice to have a new word processor for the secretarial staff, but it's hard to figure out how to use software to improve toolmaking...

...In other words, if you wade through the economic literature, it's hard not to agree with the Cleveland Fed's Jerry Jordan: We are living at a once-in-a-genera-tion moment of economic opportunity...

...As the economy grows, revenues will grow, maybe beyond what the CBO projects...

...That's a huge change...

...Some theorize that the productivity gains may flow more from improvements in business organization than from improvements in technology...

...It was designed two years ago, and, stubbornly, the Bush team has refused to change it, even as the new productivity trends have become obvious...

...productivity grew at a paltry 1.5 percent per year...

...Furthermore, almost all economists seem quick to point out that even if the current productivity numbers hold up, this technological revolution is not on the same scale as the revolutions caused by the steam engine in the nineteenth century or electricity early in the twentieth...

...In fact, Greenspan was one of the first economists to sense the productivity surge...

...A company called Huffman Corp...

...The electric motor was invented in the 1880s, but it didn't transform factories until the 1920s, economist Paul David has noted...

...Nobel Prize winner Robert Solow famously observed that when he looked around he could see computers everywhere, except in the productivity figures...

...The economists who are singing about the productivity surge are not Wired magazine techno-enthusiasts...

...U.S...

...The funny thing is that all of two months ago, the leading Democratic economists, in Bill Clinton's Council of Economic Advisers, were rapturous about the state of the economy and its prospects over the next several years...

...The Bush plan is better than nothing...

...On February 15, the Wall Street Journal ran a fascinating front page feature on a series of tool manufacturers who have developed applications to revolutionize their workplaces...

...Now, maybe for the last time in our lives, we have the financial opportunity to enact fundamental changes...

...For the truth is that over the past several months, while Wall Street and the general public have grown jittery over the state of things, leading lights in the economic profession have grown increasingly enthusiastic about the underlying strength of the U.S...

...It's the sort of surge that makes economists rhapsodic...

...From the early 1970s through the mid 1990s, David Brooks is a senior editor at THE WEEKLY STANDARD...

...That suggests we may still be near the beginning of this particular period of bounty...

...Now, finally, there are signs, observed by many economists, that other industries are using the new technologies to transform their manufacturing processes...

...Now, it must be said that not all economists are convinced that the productivity gains will continue at this rate for a long time...

...As productivity grows, the economy will grow...

...They are intellectually small...

...It takes a long time before people figure out how to use it...

...The council cited a "growing body" of evidence suggesting that the productivity improvements are widespread...

...Daniel Sichel of the Federal Reserve points to previous technology-driven surges that lasted 10 and 25 years...

...Steam power was a huge improvement over horse power, and an electric light is a huge improvement over a candle or an oil lamp...

...They are not small in a dollar sense...

...The Republicans insist that those projections are conservative, so the government can afford to return $1.6 trillion to the taxpayers and still have money left over for Social Security, Medicare, and an $800 billion contingency fund...

...That's because while the computer was invented over half a century ago, and everybody sees that an important technological revolution is underway, economists couldn't find evidence of that revolution in the important economic measures...

...Some wonder what will happen during the current downturn...

...Industrial productivity is surging...

...Americans are not only the hardest working people on earth (the average American works about 10 weeks a year more than the average European) but also the most productive workers—by far...

...Productivity, as economists since Adam Smith have reminded us, is the core measure of economic health...

...A new technology is invented...

...Indeed, on the whole, economists have been far more skeptical about the current technological revolution than the public at large...

...At this rate, the U.S...

...On January 12, Clinton's Council of Economic Advisers issued a study showing that more than half of America's productivity gains are being generated outside the computer industry...

...Once the technology is fully deployed, however, there are decades of positive results...

...economy...

...manufacturing...

...But since 1995, productivity has grown at about a 3 percent clip...

...But the Bush tax plan is a meager response to events...

...Bill Clinton squandered the first three years of this opportunity...

...Over the last eight years the American economy has transformed itself so radically that many believe we have created a New Economy," the Clinton team enthused, describing an economy filled with "virtuous circles" and positive "feedback loops...

...But it is not the ambitious rethinking the times demand...

...economy would double in 25 years, instead of 67 years...

...It now appears that, as happened at the beginning of past economic revolutions, it simply took people a while to figure out how to use the new technology effectively...

...The real question about the Bush tax cuts, then, is not, Can we afford them...

...Those revolutions transformed everything...

...The Democrats cry that projections are notoriously inaccurate, that the tax cuts will blow a hole in the budget, and that the Bush administration's risky scheme (which sailed through the House last week) would cast us back into the days of piling debt...

...The real question is, Why are they so small...

...The Congressional Budget Office projects surpluses of about $5.6 trillion over the next 10 years...

...Nevertheless, even if today's productivity improvements are only on the scale of, say, the improvements our economy saw after World War II, we may be in for a long and sunny ride...

...Since 1995, the U.S...

...Such innovations have contributed to the robust growth of U.S...

...We will have enough revenue to allow us to reform our entire tax system...

...And it is transforming the way all of us— business, labor, and government—must act...

...We can simplify it, cut it, and turn it into a system Americans will at least regard as fair...

...uses three-dimensional imaging technology to build metal-cutting machines that are five times more efficient than the ones they replaced...

...economy is fundamentally strong, and both laymen and legislators have good reasons to believe it will remain strong for many years...

...We have the chance to reform our entitlement system, and much else...

...The key to their enthusiasm is productivity...

...So to the immediate question on people's minds in Washington—Can we afford a $1.6 trillion dollar cut?— the answer is plainly yes...

...For example, in a recent speech, Jerry L. Jordan, the president and chief executive officer of the Federal Reserve Bank of Cleveland, declared, "When we reflect back on this period of history, I am convinced we will say it was an economic revolution on an order of magnitude rarely seen in a lifetime...

...This is essentially the same message—suitably muddied and Greenspanized—that Fed chairman Alan Greenspan took to Congress in his testimony a few weeks ago...