So do we have a new economy or not? TIME convened a meeting of its Board of Economists in San Francisco this month to assess the impact of the Internet on more traditional arenas like the Fed's monetary policy, the domestic economy, and the breadth of America's socioeconomic divides. Everyone agreed on the easy part - the Internet is here to stay, and will have a profound effect on the economic life of the U.S. and the world. But what do we do about it? That, reports TIME senior economics reporter Bernard Baumohl, is where the disagreements started. "No one," he says, "is sure to what extent the rules have changed." Or whether new rules need to be written.
Allen Sinai, chief global economist at Primark Decision Economics, sees the Internet as having unleashed powerful competitive forces - new efficiencies in the way corporations do business - that may have changed the rules an awful lot. "The Internet structural change is a very big one, in the class of the railroad, the airplane, the automobile or the printing press," he says. "It should increase productivity growth and lower product prices. It could be the wild card for an inflationless prosperity." In other words, increased competitiveness among U.S. corporations with Net-connected companies around the globe could make the business world so efficient - with profits coming from productivity and not price increases - that inflation could really be dead this time.
Could the Fed chairmen of the future have the world's easiest job? Some might argue that we are already in that golden age, though neither Sinai nor Alan Greenspan himself are willing to bet the farm on it. Sinai doesn't call the Internet a "wild card" for nothing; much about its effects on the economy have yet to be played out. "Frankly, we don't know enough about it at this point," he says. "How important is the Internet to the economy? All I can say is it's huge."
Hal Varian, professor of economics at U.C. Berkeley, hardly disagrees. But he warns that to tap the full potential of the Internet, more vigilance is needed in public policy - this is no time to go on autopilot. "As the Internet reshapes the business work force, is a brain trust shortage in the offing? Absolutely," warns Varian. "We've got to improve education at every level: elementary, high school, college, and - I think most importantly - continuing on-the-job education."
Paul Romer, professor of economics at Stanford University, heartily agrees on the state of America's (and the Internet's) socioeconomic divide: "My guess is it's going to be just like internal combustion on the farm," he says. "If there isn't a change in investments in skills, it will actually widen the gap."
Then there are the smaller targets. Varian sees a need for tax-code adjustments and a sweeping deregulation of the telecommunications industry far beyond the 1996 law. "If you go back to that law, really the Internet and the data networks are kind of a footnote in the whole thing," he says. The list goes on, from the mundanities of e-commerce - such as digital signatures or time-stamping - to the global question of formulating an international governing body for Internet issues. And the Fed won't be able to lay down on the job either, Varian insists. The easier it becomes to buy and sell anythingwith the click of a mouse, the more effective liquidity there is in the economy. It's a whole new kind of inflation headache.
Varian also has a more dramatic worry. When the economy of a nation runs through little copper wires, when the efficiencies of IT are realized as a world of virtual transactions, virtual financial records and interconnected databases, isn't that rather thin ice? When the economy of the world's only superpower goes online, what happens if the system crashes? "The Internet is just basic communications infrastructure that creates huge benefits, but it also creates significant vulnerabilities to hackers, crackers and even terrorists," he says. "Computer security, I think, is a significant problem, and it's going to get worse before it gets better."
The none-too-surprising consensus: We are indeed at the dawn of a new age, and this age could well be better than the last. But to paraphrase Thomas Jefferson, eternal vigilance could well be the price of freeware. In the beginning, the primary allure of the Web was that everyone on it immediately had their own stage, their own printing press, and the government seemed out of earshot. Now that the Internet has become a backbone of corporate America and of the nation's thriving economy, it is getting more attention from the government from ever. According to these guys, it dearly needs it.
Look for the entire report of TIME's Board of Economists in the October 4 magazine.