“The overly romantic faith in a new economy has already done plenty of damage. Just ask all those investors in Nasdaq stocks,” writes Jeff Madrick in today’s New York Times.

“But recent revisions to the productivity data reported by the Bureau of Labor Statistics show how thin the new- economy thinking has been all along.”

“First, the revisions cast doubt on a central new-economy argument by the Federal Reserve chairman, Alan Greenspan, and others. They argued that accelerating productivity gains in 1999 and 2000 were evidence that the computer revolution was at last providing a foundation for more rapid economic growth in the long run. Those gains, however, turn out mostly to have been the product of a counting error.”

“Second, the revisions seriously call into question the 10-year projections of federal budget surpluses made by the Congressional Budget Office, on which this year’s $1.35 trillion tax cut was based.”

“Third, the long-term trend of productivity, if properly measured, looks significantly slower than was thought only a couple of months ago — and, contrary to some reports, remains well below historical rates of growth.”

“Productivity is the amount of goods and services the nation produces per hour of work. Only when the nation’s businesses produce more per worker can they increase profits and raise wages. The growth of gross domestic product is the sum of increases in productivity and the labor force.”

“Many have long been arguing that information technology is helping business raise productivity substantially and, indeed, from 1995 to 2000, productivity was reported to have grown at nearly 2.9 percent a year. That was double the 1.4 percent rate of growth from 1973 to 1995.”

“But largely because of overestimates of computer software sales and consumer spending, the actual rate of productivity growth was, in fact, only slightly above 2.5 percent a year. This amounts to a reduction of somewhat less than four-tenths of a percentage point a year.”

“Can such a reduction in the annual rate of growth make that much of a difference? The answer is a resounding yes, especially when considering its timing.”

“For one thing, the faster rates of productivity growth in the late 1990’s, which lent so much confidence to Mr. Greenspan and others about the maturing of the new economy, were significantly reduced. The 2.6 percent growth rate in 1999 was cut to 2.3 percent, and the stunning 4.3 percent rate in 2000, which converted many a skeptic to the new- economy cause, was cut to 3 percent.”