The fundamental technological inventions of the past 50 years have given us an astonishing variety of new products and services, from cellular telephones to digital video to e-commerce. At the same time, ICT has also enabled firms to produce many old-economy goods and services, such as automobiles, steel and financial services, more efficiently. Since the mid-1990s, the U.S. economy has witnessed an astounding increase in productivity growth that has brought higher standards of living, employment and real incomes to most Americans. How long can it last?

Although GDP growth slowed toward the end of 2000, there is no sign that the forces causing the rise in productivity growth have diminished. This suggests that the recent slowdown will prove to be a temporary, cyclical phenomenon and not the beginning of a return to a slower long-run growth path.

A more fundamental question, however, is whether the U.S. economy can sustain a high pace of trend economic growth over many years, even decades. Many economists think so, but there are skeptics. One skeptic is Robert Gordon, a professor of economics at Northwestern University. Gordon argues that much of the recent acceleration in U.S. productivity is due to cyclical forces, suggesting that productivity growth will fall as economic activity slows to a more modest pace. Moreover, he contends that the computer, the Internet and other high-tech products of the late 20th century pale in comparison with the great inventions of the late 19th century in terms of their impact on productivity and long-run standard of living. Electricity, the internal combustion engine, and significant advances in chemicals, medicine and communication were much more important for sustained economic development, Gordon contends, than the transistor, the microchip or the Internet.

Thus far, the short period since 1996 favors those who believe we have a "new economy." Average labor productivity growth in the United States has increased at an average rate of 2.8 percent since 1996. Productivity is now growing at about the same rate as it did during the halcyon productivity boom of 1919 to 1973, which scholars attribute to the industrial revolution of the late 19th century. Although interrupted by a major economic depression and a world war, the great boom of the mid-20th century produced a quadrupling in U.S. standard of living. By contrast, productivity grew only half as fast between 1974 and 1995, at 1.4 percent per year. Were that rate to persist for 50 years, standard of living would only double. Obviously we hope that productivity will continue to grow at the pace of 1996-2000, but to be on par with the great booms of the past, our current rate of productivity growth will have to continue for decades more. It's simply too soon to tell whether the productivity surge of the last five years will prove to be a boom or a boomlet.

In the past, long booms in productivity growth and standard of living proceeded from clusters of major technological breakthroughs, made commercially successful by subsequent inventions and gap-filling innovations. The histories of the great industrial revolutions of the 18th and 19th centuries teach us that technological progress and economic development are encouraged by a market system that rewards individuals and firms whose advances increase productivity and economic growth the most. A high standard of living and sustainable economic growth are surely a testament to our free market economic system and the opportunities for wealth creation that spring from it. Strong support of property rights, stable macroeconomic policies and a sound educational system underpin our market system and encourage technological progress and economic growth. Macroeconomic growth is, in the end, the product of countless microeconomic decisions made everyday in response to market signals. As a society, we can best ensure a high, sustainable rate of economic growth over the long term through a market system that encourages the search for new technologies and more efficient methods of production.