Economics 201.

• Author: Robinson, James D., III
• Position: Brief Article

Tne New and Old Economy have changed the way the world works.

As the New Economy and the Old Economy continue to merge into The Economy, what are the lessons learned from such a long period of economic expansion, high employment, and inflation-less growth?

Since last year, a marked slowing of the economy, a substantial fall in equity market values, and a serious credit crunch have followed this remarkable period of growth. Yes, old and new economies are evolving to create the economy of the new millennium--a much different marketplace where some traditional assumptions deserve reconsideration and careful scrutiny. Technology, innovation, and open markets in the last several years have changed the relationships among inflation, growth, and interest rates.

Recent decisions by the Federal Reserve to cut interest rates say that the Fed understands the issues that can create economic weakness. But some members of the Fed still are overly focused on inflation and keeping a tight hand on money and credit. The European Central Bank is even more anachronistic.

Sustained economic growth of 5-6 percent has been achieved without generating inflation. Why? Competition, enhanced and strengthened by global trade and technology, has kept pricing power by business in check. Competition brought by open markets and technology is the greatest ally that the Federal Reserve and central bankers around the world have in fighting inflation. It is amazing how little this is understood. Raising interest rates and tightening money the old fashioned way can be counter-productive and risks creating the very inflation sought to be contained.

President Bush needs to ensure that muzzles are not placed on free trade, and that there is even greater disarmament of trade barriers. The emerging realization of a global marketplace and Internet speed deployment of new technologies are the driving forces of competition and productivity. When supported by access to capital and low interest rates, these are the forces of change that fuel economic growth while keeping inflation low. Those who want to keep markets closed or resist change...