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New Economy Forum Briefing J. Bradford DeLong http://www.j-bradford-delong.net/ delong@econ.berkeley.edu May 2000   Micro and Macro Studies Agree: Computer Investments Are Driving Our Current Economic Boom According to the macro studies of senior Federal Reserve economists Steve Oliner and Dan Sichel, more than eight-tenths of the 1.1 percentage-point acceleration of economic growth in the second half of the 1990s is due to the effects of computers. According to the micro studies of economists Erik Brynjolffson (MIT) and Lorin Hitt (Wharton), successful use of information technology requires substantial changes in business processes, organizational structure, worker skills, product innovation and services delivered. Such organizational "investments" have a very large influence on the value of information technology investments. Among the most important benefits of information technology investments are the hard-to-measure intangibles--convenience, customer service, quality, and variety. The benefits of information technology investments accrue disproportionately to the subset of firms that employ a cluster of practices involving skilled workers, delegated decision-making, and team-based production. Finally the micro and macro studies agree: computers are a really big deal. Twelve years ago MIT economist Robert Solow asked why we did not see the impact of the computer revolution in the aggregate economic productivity statistics. In response to his question, an entire intellectual industry grew up that "explained" why most investments in information technology were wasted. But now we see that it was this exercise in intellectual ingenuity that was wasted--not computer investments.

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Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
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