Technology and economic performance in the American economy

This paper examines the sources of the U. S. macroeconomic miracle of 1995-2000 and attempts to distinguish among permanent sources of American leadership in high-technology industries, as contrasted with the particular post-1995 episode of technological acceleration, and with other independent sources of the economic miracle unrelated to technology. The core of the American achievement was the maintenance of low inflation in the presence of a decline in the unemployment rate to the lowest level reached in three decades. The post-1995 technological acceleration, particularly in information technology (IT) and accompanying revival of productivity growth, directly contributed both to faster output growth and to holding down the inflation rate, but inflation was also held down by a substantial decline in real non-oil import prices, by low energy prices through early 1999, and by a temporary cessation in 1996-98 of inflation in real medical care prices. In turn low inflation allowed the^Fed to maintain an easy monetary policy that fueled rapid growth in real demand, profits, and stock prices, which fed back into growth of consumption in excess of growth in income. The technological acc