By Roger Alcaly
Farrar, Straus & Giroux -- 324pp -- $25
It was the dawn of World War I. More than three decades had passed since the memorable night in 1882 when Thomas Edison's engineers lit up J.P. Morgan's Madison Avenue mansion with 300 newfangled light bulbs. Electricity was expected quickly to transform industrial production. But 15 years into the new century, American industrialists were still waiting for a big productivity payoff. Was all the electricity talk just hype?
Not by a long shot. But as Roger Alcaly notes in The New Economy: What It Is, How It Happened, and Why It Is Likely to Last, industrial revolutions are notoriously slow out of the gate. A former senior economist at the Federal Reserve Bank of New York and now principal of the investment company Mount Lucas Management Corp., Alcaly argues that information technology, like electricity before it, will fuel powerful economic growth for a generation ahead. The stock swindles and insider deals? They're excesses bred in a frothy climate, he says -- but nothing that will undo the coming New Economy.
Don't count on Alcaly for predictions. He resists putting a number on the economic dividends of the New Economy, and he says the impact will be difficult to gauge for at least another decade "and probably much longer."
Still, it's taking shape. Alcaly's model is electricity. For decades, industrialists would electrify parts of their plants, but only to supplement the older steam engines. It wasn't until the 1920s, when new immigration laws slowed the arrival of cheap labor, that U.S. industry plugged fully into the new grid and gained the productivity windfall.
Alcaly suggests that a similar lag is holding up the computer revolution. He argues that the full impact of the New Economy won't be felt until vast sectors rejigger basic processes, zapping data across the Internet between suppliers, workers, sales staffs, and customers.
In his broad survey of an economy in transition, Alcaly ranges from the equity markets to manufacturing and the Federal Reserve. Much of this is familiar, and he often strays from his line of argument. Still, he makes a solid case that a New Economy is upon us, even if its magic is hard to measure and predict. By Stephen Baker