During the early 1990s, lower import and energy prices combined with lower inflation rates, to stabilize the economy. Acceleration in the pace of technological change and the continuing globalization of the economy helped to raise productivity. Almost 18 million new jobs were created between 1993 and 1999, wages rose at twice the rate of inflation, and unemployment and inflation were at their lowest levels in three decades.
This did not happen by accident. The economic policy from the Fed and the White House at that time was focused on fiscal discipline, investments in education and technology, and expanding exports to the growing world market. More than $1 trillion in capital was freed for private sector investment. In past expansions, government bought more and spent more to drive the economy. During this expansion, government spending as a share of the economy fell.
In references to the economy of the 1990s, Alan Greenspan has been an unabashed supporter of technology and its benefits. Greenspan cites technology as the dominant driver of productivity in the economy. This subject has been a recurrent theme in his public remarks for several years.
"New technologies have made capital investment more profitable, enabling firms to substitute capital for labor far more productively than they would have a decade ago," he said in testimony before the Senate in February 1999. Greenspan's point then, as now, was not just that businesses have replaced labor with new technologies, something they've been doing since the Industrial Revolution, but that this substitution is both more profitable and productive than ever before.
Technologically driven benefits have ramifications, such as the displacement of unskilled workers. Speaking before a business group in Minneapolis in September 1999, Greenspan noted that, "There is little doubt this transition to the new high-tech economy is proving difficult for a large segment of our workforce."
The stock market's decline in 2000 caused some to question the productivity improvements of the late 1990s. Yet even though investors overestimated the value of some technology-intensive investments, it would be a mistake to infer that technological improvements hold little promise for future economic growth. Analysis of available data indicates that post-1995 productivity improvement owes much to the U.S. economy's ability to profit from technological innovation.
Focus is needed on ideas for new technology with synergy between government, business and educational institutions to create a strategy based on the needs of society. Needs that could drive technology include the reduction of pollution, replacement of fossil fuels, and lower costs for health care. Ironically, all of these needs are related and they serve other goals as well. If pollution is reduced, it will reduce the cost of health care. If dependence on oil is reduced, it will help to reduce pollution, reduce the cost of health care and improve national security.
These are just a few ideas that can improve our lives and at the same time drive our economy and create new jobs. Examples where companies have invested in new technologies that help create jobs and meet the needs of society include Maxon Corporation (new M-PAKT burner that features ultra-low emissions), Honda and Toyota (hybrid cars), and Arbortech Corporation (WW, a device that recycles wastewater from floor scrubber operations).
Government needs to behave with more fiscal restraint and at the same time create policies that are consistent with our economic needs and the needs of society. We must all look beyond initial cost to see the benefits and the cost savings over time. The time for action is past due.