Homework 1: Solution

Ryoichi Imai

2004/11/17

Answer to all the following questions, based on the article `Does the "New Economy" Measure Up to the Great Inventions of the Past ?'  The numbers in ( ) represent the corresponding pages.

Write your answers in your own words. Never copy a large part of the paragraph, even if you do not know the answer.

Type your answers on A4 papers.  At the top of your homework, type your name and e-mail address.

1. What is the Solow computer paradox? (49)

   "We can see the computer age everywhere but in the productivity statistics." That is, there are few empirical evidences that the use of computers has contributed to the productivity growth.

2. According to Table 1, in what sense are the data for 1995-99 remarkable, compared with the previous period 1972-95 ? (53)

   The 1995-99 period is remarkable in both multifactor productivity growth and capital deepening., in comparison to the previous slowdown period 1972-95. The multifactor productivity grew even more rapidly in 1995-99 than in the golden age 1913-72. 

3. What does the number (-0.29) in line 11 of the 3rd column imply? (56)

   It implies that the productivity growth decelerates in the most sectors of the economy outside the durable goods manufacturing.

4. Explain the First Industrial Revolution. When and where did it occur? Did the Revolution improve the standard of living in fact ? (58)

   The First Industrial Revolution began in Britain and extended from 1760 to 1830. It did not change the quality of life so much. Right before the Second Industrial Revolution burst out, people lived in very poor and inconvenient conditions, compared with the life standards of today.

5. Describe the five clusters of inventions in the Second Industrial Revolution, which occurred in late 19th century. How and when did the inventions contribute to economic growth? (59)

   1. Electricity brought electric light and electric motors, and are utilized in many electric appliances such as laundry machines, refrigerators, TV, and air conditioners.

   2. The internal combustion engine made possible personal autos, motor transport, and air transport, which made it easy to go to places in the long distance.

   3. Use of petroleum, natural gas, and various chemicals and pharmaceuticals reduced pollution, improved public health , and helped to conquer illness.

   4. The new media of entertainment, communication, and information innovation, were made possible by the inventions of telephone, radio, motion pictures.

   5. Running water, indoor plumbing, and urban sanitation infrastructure, brought sanitary life and contributed to the decline of mortality.

6. What is the Diminishing Return, which has been occurring in the use of computers? Explain it by the example of Word Processing. (63)

   The additional utility of using a new word processing software has continued to decline. Its real revolution came at the beginning by ending repetitive typing and by allowing revisions to be inserted while the rest of the document would automatically reformat itself.   Further upgrades in the technology have created only marginal gains in utility. 

7. What did Paul David argue, regarding the delay of the productivity contribution of each new invention ? (64)

   The productivity benefits of each invention tend to arrive much later than the time when it was invented.

8. What is the "real limitation to the replacement of human beings by computers" ? Explain it by examples. (65)

   For example,  commercial aircraft will always need two human pilots, no matter how advanced the avionics in the cockpit. Most tasks in business require in-person contact between clients and practitioners, or objects and practitioners, which cannot be replaced by computers by nature. 

9. Brynjolfsson and Hit report that the return on investment in computers exceeds investments in other areas at the individual firm level . But at the macroeconomic level, the Internet has failed to boost productivity growth outside of the durable manufacturing sector. What is the first factor to explain this contradiction ? (69)

   Investing in computers and the internet greatly helps firms to steal customers from their competitors. However, this is a zero-sum game that does not increase wealth, but only redistributes wealth between competitors. 

10. In what sense is the Internet content not truly new? (70)

    Internet surfing provides airline schedule information at lower costs. But the information itself has been acquired through other channels. Most services made possible by internet contribute only to reducing the costs. On the contrary, the great inventions in the 19th century created truly new products and activities. 

11. (Extra Credit) Discuss your own idea freely on this article. Do not skip this question.