The Computer Revolution: An Economic Perspective

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Brookings Institution Press, 2001 M08 9 - 152 pages

During the 1980s and into this decade, U.S. businesses poured billions of dollars into computers and other information technology. Yet the productivity performance of the U.S. economy in the 1980s remained lackluster--especially in the service sector--leading many observers to suspect that companies were not getting their money's worth from these high-tech investments. At the same time, academic research found little evidence of a productivity payoff. But have the tables now turned? With an apparent improvement in productivity in recent years, much academic and popular opinion now suggests that the payback is at hand or just around the corner.

As the nation embarks on a major effort to develop an Information Superhighway, it is critical for policymakers, opinion leaders, and others to understand the contribution and role of information technology in the economy during recent decades. This book provides a straightforward guide to the economic issues underlying the debates about these issues, using quantitative and historical analysis, supplemented with interviews of small and large service-sector companies.

To set the stage, Daniel Sichel reviews the debates over the role of computers and summarizes the essential facts about computer use, with a particular emphasis on software. Going beyond basic facts, Sichel describes an economic framework for assessing the aggregate economic impact of computers in recent decades and for looking ahead at this impact in the future. Quantitative estimates from this framework, along with supporting historical and interview evidence, place limits on the contribution of computers to the overall economy. When compared to the size of the slowdown in productivity growth in the early 1970s, the overall impact of computers appears relatively modest, in part because the share of computers in the nation's capital stock is surprisingly small. Looking ahead, Sichel also raises questions as to whether computers are likely to solve the nation's productivity woes in the future.

 

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Contents

Introduction
1
Scope and Methodology
8
Summary
10
Chapter Outline
12
The Economics of the Computer Revolution
15
Two Important Implications
21
Supernormal Returns and Welfare Effects
27
The Productivity Paradox
32
Measuring the Aggregate Impact of Computers
75
Computing Services and Economic Growth
79
What About Supernormal Returns?
85
Mismeasurement of Output
90
Looking Ahead
100
Deriving the Neoclassical GrowthAccounting Expression in Equation 41
107
The Computer Revolution Examples from the Past
113
The Long View
114

The Contribution of Computers to Output Growth
36
Computer Hardware and Software in the Economy
39
Computer Hardware in the Economy
40
Software Sales and Employment
44
Software Prices
52
Software and the National Income Accounts
58
Computing Services
65
Capital Stocks for Computers and Peripheral Equipment
68
Office Automation Equipment before Computers
121
Past Commentary on the Computer Revolution
128
Conclusion
31
The Focused Interviews
35
References
43
Index
49
Copyright

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About the author (2001)

Daniel E. Sichel is a senior economist at the Federal Reserve Board. Previously, he served as a deputy assistant secretary in the U.S. Treasury Department and was a research associate at the Brookings Institution.

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