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New Economy

The New Economy is a term that was coined in late 1990s to describe the evolution of the United States into a high technology-based economy, arising largely from new developments in the internet, telecommunications and computer sectors. At the time, this evolution was believed by many analysts to have created a state of permanent steady growth, low unemployment, and immunity to boom-and-bust macroeconomic cycles. It was moreover perceived to have rendered obsolete many business practices associated with the era of manufacturing.

In the financial markets, the term is often associated with the emergence of the NASDAQ as a rival to the New York Stock Exchange, a high rate of IPOs, the rise of Dot-com stocks over established firms, and the prevalent use of such tools as stock options as employee compensation.



The economics figure of the United States looked very nice in the 1990s. After the Great Depression of the 1930s, the recovery after the Second World War, the economy of the United States seemd to decline since the oil shoks of the 1970s and the rise of Europe, South East Asia and Japan. Japan's economy was at peak in the 1980s, but it collapsed in the late 1980/early 1990s, the Economy of Europe seemed to be sluggish in the 1990s, and South East Asia was hit 1997 by the Asian financial crisis. So, in comparisons to other countries the United States seemed strong.

However, figures were also good in comparison with past years : low unemployment, low inflation, high growth. Economists, including from the IMF, thought that when unemployement will be under 6%, inflation will increase but this did not happen.


At the same time, there were a lot of investment in the companies of the technology sector. Stock shares rose dramatically. A lot of start-up were created and they stock value was very high where floated. Newspapers and business leaders were starting to talk of new business models. Some even claimed that the old laws of economics did not apply anymore and that there new laws. They also claimed that the improvements in computer hardware and software will dramatically change the future, and that information is most important value in the New Economy.

Stock market crash

In March/April 2000, stock prices at Nasdaq crashed, the Nasdaq fell from nearly 5,000 to 2,000. A lot of start-ups went bankrupt.


After the crash, accounting scandals appeared. Medi revealed that companies of the New Economy, such as Enron, Worldcom and Global Crossing had manipulated their accounting. The companies filed Chapter 11.


Stock options

Some economists as for example Joseph Stiglitz criticized the fact that stock options were not included in the accounting. They were given a value of zero even if they mean a dillution of stocks when stocks will be converted in money.


Joseph Stiglitz also said that a lot of investments were useless especially in software and unused fibre optics.

See also

Last updated: 02-20-2005 07:26:06