From amo Sat Jul 4 18:40:32 1998 To: gene.epstein@news.barrons.com Subject: computers in the economy Dear Mr. Epstein, Your columns in the June 22 and 29 issues of Barrons on the impact of computers were very stimulating, and I agree with everything you say. It seems the examples you present in the June 29 column could be used to argue that even if the official productivity figures were correct, they would simply show that without computers we would be in a truly sorry shape. Concerning your June 22 column, two of the three "avant-garde steps" that you cite can be refuted on factual grounds. Business is investing in computers "like there was no tomorrow." According to the report "The Emerging Digital Economy," issued by the U.S. Department of Commerce in April of this year, and available from information technologies now take 45% of business investment. You make an excellent point that "[p]rofits aren't a proxy for productivity at all, but usually just a small piece of the action." After all, if it were otherwise, each of the earlier productivity revolutions (canals, railroads, electricity, telephone, motor car, etc.) would have led to a permanent boost to profits, so that by now almost all of the economic output would go to profits. That clearly has not happened, and there is no reason that "The New Economy" will be any different. Even though we are experiencing a revolution that will improve our lives, we should not expect profits to keep marching skyward. I remember a conversation with a former college classmate of mine about 15 years ago. He was then working for a Citibank, and had just come from a meeting where an outside consultant had disparaged the role of computers in banking on the grounds they had not led to a rise in profits. My response to that was that profits are a function of competition, and the relevant measure was to check what happened to banks that did not invest in modern information technologies. Sincerely yours, Andrew Odlyzko ************************************************************************ Andrew Odlyzko amo@research.att.com AT&T Labs - Research voice: 973-360-8410 http://www.research.att.com/~amo fax: 973-360-8178 ************************************************************************