WHAT'S MOVING TODAY'S ECONOMY?
Computer production explains a lot
To a large extent, arguments that the U.S. has entered a new era of noninflationary robust growth have relied on the idea that the computer revolution is somehow transforming the economy the way earlier technological breakthroughs did. Economist L. Douglas Lee of HSBC Washington Analysis points out, however, that it is not the widespread use of computers, but rather the rising output of computer makers themselves that has produced much of the economy's recent spate of fast-paced inflation-free growth.
The chart underscores the story. In recent years, computer production and consumption alone have added about 1 to 1.5 percentage points to economic growth. As Lee notes, though, that's not because spending on computers has outpaced other outlays. Rather, it's mainly because computers are being sold with more power and features, which statisticians measuring gross domestic product translate into falling prices and more computer output.
The critical point, says Lee, is that the technological advances being embedded in computers add to GDP but place no extra strains on productive capacity. The same people, factories, and raw materials can be used to produce each new generation of computers. So those who want to calculate whether the economy is surpassing its inflationary speed limit would do well to separate the contribution of the computer sector from the rest of the economy.
Such an exercise is revealing. Lee finds that much of the recent surge in industrial productivity is related to the technologically enhanced output of computer industry workers. More important, subtracting the impact of falling computer prices from national output, he finds that the economy has grown at a 2% to 2.5% annual pace in recent years--close to, but not above, its long-term trend.
From this perspective, the lesson for market observers and monetary policymakers is clear: As long as the economy's high growth rates are tied directly to the computer sector itself, says Lee, the Federal Reserve should temper any inclination to step down hard on the monetary brakes.BY GENE KORETZReturn to top
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GIVING DENTISTS A CHECK-UP
Tight laws don't benefit patients
Does rigorous occupational licensing of professionals--doctors, dentists, lawyers, and the like--promote consumer welfare? Economists are of two minds on the question. Some, like Milton Friedman, are concerned that restrictive licensing reduces the supply of practitioners, thereby raising the price of services and hurting consumers. Others stress that licensing assures consumers higher-quality services by preventing inept and poorly trained practitioners from entering the market.
A new National Bureau of Economic Research study by Morris Kleiner and Robert Kudrie doesn't resolve the issue, but it does suggest that licensing laws don't always deliver their vaunted benefits. The two researchers rated states according to the toughness of their licensing laws for dentists by two criteria: the pass rate on licensing exams and the willingness of licensing boards to recognize the credentials of dentists licensed by other states. They then compared the dental health of a sample of new U.S. Air Force recruits with the states where they had lived.
The results indicated that restrictive licensing had no beneficial effect on the recruits' dental health, which was as good among those from states with looser regulation as among those from states with the tightest rules. Restrictive licensing, however, did have a significant impact on the welfare of dentists. Other things being equal, the researchers found that dental fees were 14% to 16% higher and dentist incomes 10% higher in the states with the toughest licensing laws than in states with the least-strict regulations.BY GENE KORETZReturn to top