The broad indexes, which are important, are down, but not catastrophically. The catastrophe is confined to a very weird little sector of the economy. The Internets and dotcoms were all new and very sexy, and people got kind of silly about valuations, and now this is a very necessary and overdue correction.
Feinman: I don't know that we have the proper metric for measuring the size of bubbles. But there were some fundamental improvements in the U.S. economy in the late 1990s. This run-up that we had was not just based totally on air.
I have little doubt that things got carried away. I doubt that it was the greatest bubble in human history. But as I said earlier, I do think that we got somewhat excessive, and that we're going to have to work those things off.
Simonoff: Isn't productivity the big question mark, here?
Feinman: Always.
Simonoff: Do you think we can continue to have strong productivity growth?
Feinman: I'm cautiously optimistic that that can be. I don't think all of the acceleration in productivity in the late '90s was a trend. I think a good part of it was cyclical. But I do think something fundamental and real may have happened and may be sustainable going forward, and you know, I still think that there are some opportunities for some of these IT efficiencies to diffuse throughout the rest of the economy.
I'm a little bit cautious though, because the rate of decline of IT prices seems to have slowed down a bit, maybe picking up again a little bit more recently. And it slowed down at the same time that some of the profit margins of these IT producers have been under pressure. That could be a sign that their underlying efficiency gains are becoming a little harder to come by. We had very steeply declining IT prices for many years, relative prices, at the same time that IT producers' margins were holding up well, if not widening. That was very supportive evidence of the notion that these guys were getting more productive. So some sign that that process is slowing down is a little worrisome, and it's worth watching. But I still think we're going to be able to sustain some of the pickup in productivity growth in the late '90s, but the cyclical component of it is clearly going to go away.
Horrigan: Well, I'm somewhat upbeat that we've got better productivity possibilities for a while. I don't think we're going to get quite what we had a while ago. No one's mentioned Y2K, but that was a one-time influence. Throughout the whole business world, every kind of high-tech machinery and software was replaced, upgraded in a very short period of time, which happened during a period where actually the technology was advancing very rapidly, in terms of superior semiconductors.
But that spending boom contributed to a huge surge in GDP and capital spending and also in productivity. That was a once-in-a-lifetime kind of occurrence, so the idea that at the tail end of a 10-year expansion, you're going to get 5% productivity growth year-to-year is, to me, is not repeatable. We'll probably go back to more normal, more calm productivity levels on the order of 2%, 2.5%, per year.