THE TEACHING ECONOMIST - William A. McEachern                 

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Issue 18, Spring 2000

William A. McEachern, Editor

A New Economy?

Now that the U.S. economy has achieved its longest expansion on record, macroeconomists are in danger of becoming underemployed, like the Maytag repairman sitting by the phone waiting for a call. Some proponents of the New Economy also view economists as growing irrelevant. A special edition of The Wall Street Journal published on New Year's Day carried articles such as "So Long, Supply and Demand," which called for new ways to view the economy. Wired magazine's Web site contains an Encyclopedia of the New Economy with about a hundred entries, all supposedly new, new, new! But at least half of these terms are discussed in most principles of economics textbooks, and just about all of them were developed by economists.

When I was growing up in New Hampshire, assorted vendors regularly stopped at our home, including people we called Jimmy the Egg Man, Phil the Grocer, the Bread Man, the Milk Man, the Fish Man, the Bleach Man, the Insurance Man, and the Junk Man. Now you can order this stuff over the Web for home delivery (or get rid of your junk at an online auction), and that's considered a modern-day miracle of the new economy.

The Internet is indeed wonderful and it breathes new life into some existing economic ideas such as network goods and increasing returns. But the laws of supply and demand have not been repealed, and economists still have a comparative advantage in sorting things out. For example, Information Rules: A Strategic Guide to the Network Economy (Harvard Business School Press, 1999) by Carl Shapiro and Hal Varian, examines the information economy through the lens of economics.

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