Briefly, old economy advocates believe that the growth rates of the last four years cannot be maintained, i.e., the economy will run out of resources and output will have to slow down to avoid accelerating inflation. The new economy advocates believe that overall productivity has been so enhanced by the new information age technology that a much higher level of economic growth is now sustainable without excessive inflation inducing strains on the available resources. In a nutshell, that is where the debate regarding economic and monetary policy remains. Even most new economy advocates would agree that this is above the new economy's potential for long-term sustainable growth. The major uncertainty at the moment is whether the desired slowdown is or has been occurring.
Analysts are divided.
The new economy group argues that there is no need for further monetary tightening and higher interest rates. The old economy advocates say that resources are now in short supply and that failure to further tighten monetary policy will result in more inflation, continuing expansion in the money supply, and further increases in stock prices, which this school maintains are already terribly overvalued by any reasonable historical standard. As usual, when controversy such as this prevails, the empirical evidence exists to support either position and no one knows with certainty which view most closely represents reality. Thus, we will have to wait and see. It should not be many months before some more definitive answers appear in real world data.