, an increase in the economy ’ s maximum sustainable growth rate and, second, the spread and increasing importance of information and communications technology. the latter is presumably the major contributor to the acceleration in labor productivity that, in turn, is the principal source of the increase in trend growth in real gdp. a third, and perhaps related, development is a possible increase in the economy ’ s sustainable utilization rates, specifically a decline in the non - accelerating - inflation rate of unemployment ( nairu ). our laboratory for the new economy is the united states, given that there is very little evidence outside the united states for even this narrow definition of the new economy. in the case of the united states, however, there is little doubt that the underlying rate of productivity growth has increased significantly in the second half of the 1990s. from 1974 to 1995, labor productivity advanced at about an annual rate of 1½ %. productivity then accelerated to a rate of about 2½ % in the second half of the 1990s. this acceleration appears to have been spread out over the second half of the 1990s, so that the average rate over that period understates the rate of productivity growth at the end of the period. productivity typically grows faster than its longer - term trend when gdp growth is rising and falls below trend when gdp decelerates. this pattern simply reflects lags in adjusting employment to changes in gdp growth. measuring productivity growth over a long period, such as 1974 to 1995, effectively eliminates this shorter - run component of productivity growth. and because gdp growth was relatively stable during the second half of the 1990s, shorter - run dynamics appear not to have been an important contributor to the higher productivity growth in that period. moreover, careful econometric attempts to isolate the short - run dynamic and longer - run structural components generally have concluded that structural productivity growth increased from about 1½ % in the earlier periods to around 2½ % to 3 % by the end of the decade. that would put the sustainable rate of gdp growth up to 3½ % to 4 %. still there is considerable uncertainty about trend productivity growth, including whether it might be accelerating, especially given the brief period over which higher and rising structural productivity growth has been experienced. important questions about the measurement of productivity aggravate this uncertainty. and there is also considerable uncertainty about how long the higher productivity growth will persist. for example, periods of more rapid productivity growth might be best understood as a transition to a higher level of productivity that is based on major

technological developments. the persistence question is more important for assessing longer - run fiscal prospects - including the solvency of social security - than to monetary policy decisions that are made in the context of a one to two year period. using the neoclassical model, and disaggregating capital into information and communications technology and other capital, dan sichel and steve oliner of the board staff decomposed productivity growth into contributions from capital deepening ( the growth arising from an increase in the ratio of capital to labor ) and multifactor productivity growth ( the growth in output that cannot be accounted for by increases in labor and capital inputs ) and into the contributions from the use of information technology and from increased efficiency in the production of computers. according to their estimates, a bit less than half of the productivity acceleration was due to a pickup in capital deepening and a bit more than half to an increase in multifactor productivity growth. more than 90 % of capital deepening came from information and communications technology equipment, and nearly 40 % of the increase in multifactor productivity growth came from increased efficiency in the production of computers and embedded semiconductors. altogether, therefore, information and communications technology accounted for slightly more than two - thirds of the increase in productivity. 1 besides the direct effects of information and communications technology through capital deepening and the more efficient production of computers, this technology may also indirectly raise productivity through spillover effects. if the use of information and communications technology generates externalities throughout the economy - for example, through new efficiencies from e - commerce - the overall efficiency in production will increase. in a traditional growth accounting setup, these effects would show up in multifactor productivity growth. evidence of spillovers is extremely sparse. some back - of - the - envelope calculations by oliner and sichel suggest that such effects have been quite small to date, though the explosive growth of e - commerce, particularly in the business - to - business segment, suggests a potential for a more important contribution over time. but do these developments - specifically higher trend productivity growth and the spread of information and communications technology - alone justify the “ new economy ” label? we could, for example, explain recent us economic performance in terms of “ new parameters in the old paradigm ”. for papers on recent productivity performance and attempts to separate cyclical and trend components and the role of capital deepening and multifactor productivity, and to measure the contribution from information and communications technology, see robert j gordon, “