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D5:   The Digital Economy and Information Technology: A Critique of Department of Commerce Spending Statistics
    By Paul A. Strassmann
    25 Pages
    Date Published: 10/2000

    Online Price: $4.98

Summary

The contributions of information technology industries to U.S. economic growth and their counter-inflationary contributions have resulted in the production of three comprehensive reports by the U.S. Department of Commerce (DOC).

The 1998 report stated that information industries have driven over "one-quarter" of total real economic growth. The 1999 report stated that information industries contributed 35 percent of the nation's real economic growth. The 2000 report stated that information industries contributed "nearly a third" of the real growth of the U.S. economy.

The purpose of this study is to examine the rationale and methods used for estimating the relationship between the contributions of information industries and their effect on the U.S. economy. This examination has resulted in the following findings:

  • The DOC definition of the scope of "information industries" is broader than what is the generally accepted definition of "I.T." anywhere in the world. The DOC included sectors such as radio broadcasting, television broadcasting, office machines (copiers, duplicators, fax machines), laboratory analytical equipment, instruments for manufacturing testing and measuring electricity, electronic capacitor manufacturing, household audio and video equipment, wired telecommunications carriers, paging equipment, cellular and other wireless communications.

  • Based on current spending "I.T." would account for 3.91% of the total Gross Domestic Income (GDI) instead of 8.29% as claimed by the DOC.

  • The contribution of "I.T." to the nominal dollar growth in the GDI from 1995 to 1998 would be only 9.01% instead of 12.15%, as defined by the DOC.

  • To place the role in the most favorable perspective and thus assign to "I.T." the leading explanation for the persistence of low inflation and low unemployment while being the primary driver of rising productivity the DOC applied "hedonic deflationary adjustments" to the published GDI numbers. The net effect of these modifications was to further magnify the contributions of "I.T. producing industries" to the economic growth of the U.S. to 31.9%.

  • The "I.T." products consuming sector can be characterized by an unprecedented rate of obsolescence of everything delivered to it by the "I.T. producing industries." The economic model is primarily one of an significantly wasteful arms race, not of a gross investment in productive capital. To infer that gains in the share of the GDI by the "I.T." industries produces corresponding gains in wealth-producing capital is not demonstrable except by an examination of the uses of "I.T."

  • The judgment whether "I.T." does or does not contribute to the rising U.S. productivity should be made primarily on the basis of the gains that are actually delivered by the purchasers of information technologies and not by its producers. Our research findings show that the ratio of U.S. administrative costs to the cost of goods have actually increased during the period analyzed by the DOC.


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