DECEMBER 29, 1997 / JANUARY 5, 1998 VOL. 150 NO. 28	4 0f 5
The Digital Age	By Walter Isaacson

No one believes the microchip has repealed the business cycle or deleted the threat of inflation. But it has, at the very least, ended the sway of decline theorists and the "limits to growth"crowd, ranging from the Club of Rome Cassandras to more recent doomsayers convinced that America's influence was destined to wane. The U.S. now enjoys what in many respects is the healthiest economy in its history, and probably that of any nation ever. More than 400,000 new jobs were created last month, bringing unemployment down to 4.6%, the lowest level in almost 25 years. Labor-force participation has also improved: the proportion of working-age people with jobs is the highest ever recorded. Wage stagnation seems to be ending: earnings have risen more than 4% in the past 12 months, which is the greatest gain in 20 years when adjusted for inflation. The Dow is at 7756, more than doubling in three years, and corporate profits are at their highest level ever. Yet inflation is a negligible 2%, and even the dour Fed Chairman Alan Greenspan seems confident enough in the new economy to keep interest rates low. Driving all this is the microchip. The high-tech industry, which accounted for less than 10% of America's growth in 1990, accounts for 30% today. Every week a Silicon Valley company goes public. It's an industry that pays good wages and makes both skilled and unskilled workers more efficient. Its products cost less each year and help reduce the prices in other industries. That, along with the global competition that computers and networks facilitate, helps keep inflation down. Economists point out that the Digital Revolution has not yet been reflected in productivity statistics. The annual growth of nonfarm productivity during the 1980s and 1990s has averaged about 1%, in contrast to almost 3% in the 1960s. But that may be changing. During the past year, productivity grew about 2.5%. And in the most recent quarter the rate was more than 4%. In addition, the traditional statistics are increasingly likely to understate growth and productivity. The outputs of the old economy were simpler to measure: steel and cars and widgets are easily totted up. But the new economy defies compartmentalized measurement. Corporate software purchases, for instance, are not counted as economic investment. What is the value of cell phones that keep getting cheaper, or of E-mail? By traditional measures banking is contracting, yet there has been explosive growth in automated banking and credit-card transactions; the same for the way health care is delivered.

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