What is left of the new economy?

There is no proof that a new paradigm of economic theory has been enthroned, rending old economic laws invalid. According to followers of the new paradigm, knowledge creation transformed into new products of information industries should bring increasing returns, accelerate growth to rates unseen in the past, ensure low inflation with full employment, and free the economy from the business cycle. They see a productivity increase of 3 - 4 % annually as sustainable in the long run. Critics of the new paradigm argue that productivity increase in the USA in the last decade was predominantly cyclical and will not be sustainable, that the information technologies so far had little positive impact on the rest of the economy, and that the business cycle is far from being dead.

Keywords: business cycle, total factor productivity, new economy, productivity growth, monetary and fiscal policy