Talk of a "new economy" disappeared from polite conversation when the Nasdaq dropped below 2500. Today, the term is seldom used without a sneer. But members of Congress meeting this week to complete accounting-oversight legislation should remember this: There is a New Economy, in the form of companies whose value is determined far more by intangible assets than physical ones. And it will frustrate their best efforts to return corporate accounting to its former stolidity.

There are some problems that can be fixed -- and likely will be fixed -- by the pending legislation. The standards-setting process needs to be strengthened. The Financial Accounting Standards Board's cave to industry and congressional pressure in the 1990s on the question of expensing stock options, as well as its failure to come up with a reasonable rule for the treatment of special-purpose entities, are clear signs that the board needs more independence and oversight. And WorldCom Inc.'s brazen shifting of current expenses to its capital account, or Global Crossing Ltd.'s use of swaps to boost its earnings, makes clear that auditors aren't doing their jobs as well as they should.

But even if Congress fixes those problems, accounting will still be left with the challenge of dealing with a New Economy that doesn't lend itself well to Old Economy notions of economics, business practices and accounting.

What's true about the New Economy -- even with the Nasdaq below 1300 -- is that it consists of products whose value depends far more on their intellectual content than on their physical characteristics. It is, in short, an economy based on ideas. And ideas, it turns out, are fundamentally different economic entities from widgets.

During the boom years, everyone focused on the differences that worked to the advantage of business. Idea-based products, unlike widgets, can be endlessly replicated at little extra cost. And they often have "network" effects: If 10 people try to share a widget, its value to each will decline; but if 10 people use the same word-processing system, it becomes more valuable to each user as a standard for shared documents. The combination of low marginal costs and network benefits enabled companies with successful idea-based products -- Microsoft Corp.'s Windows is the ultimate example -- to earn astronomical profits.

But now that the bust has settled in, investors are learning the downsides to New Economy products and companies. For one thing, ideas aren't easy to control. Good ideas are like air and water; they can have enormous benefit to society, but that doesn't mean they can be easily turned to profit. Think of Enron Corp. as the ultimate New Economy company. It sold off most of its hard assets and kept as its principal asset its "superior models for assessing markets," says James V. Delong, senior fellow at the Competitive Enterprise Institute. But the company's accounting scandal quickly turned that asset to vapor.

Moreover, developing ideas is a much riskier business than developing physical products. Spend $20 million on constructing a building and the odds are pretty good that, once you are done, you'll have a building worth close to $20 million. Spend $20 million on research and development and you may have a billion-dollar breakthrough, or you may have nothing.

The challenges all this presents for the folks with green eyeshades is immense. A study by the Brookings Institution found that, back in 1978, the book value of the tangible assets of publicly traded corporations accounted for more than 83% of the market value of those companies. But today, that figure has fallen, by most estimates, to 30% or 40%. Most of the value in today's companies comes from "intangible assets" -- things such as patents, copyrights, brands, customer lists, unique organizational designs, processes, etc. And it is those assets, which tend to be incredibly volatile and difficult to value, that will continue to give honest accountants fits.

As its future gets bandied about in Washington, the Financial Accounting Standards Board is working on an effort to provide better accounting for intangible assets. Halsey Bullen, senior project manager at the FASB who is heading up the project, says the board will release a draft of its plan at the beginning of next year and a final statement at the end of the year. The idea is to provide for better disclosure of intangible assets in financial reports.

But anyone who thinks accounting for intangibles can ever provide the sort of solid information that Old Economy accounting provided should read the FASB's report on "Business and Financial Reporting Challenges from the New Economy," available on the board's Web site (http://www.fasb.org/articles&reports/new_economy.shtml). (It's also a good antidote for insomnia.) Even with good accounting, investors are going to continue to have a hard time separating the value of good ideas from sheer market puffery.

Updated July 23, 2002