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Home Book Cover Major Messages Table of contents Excerpt Feedback
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Tanaka Capital Management Inc. |
TABLE OF CONTENTS
PrefaceIntroductionCHAPTER 1MYSTERIES, PUZZLES, AND PARADOXES OF THE NEW ECONOMY 1The New Economy of the 1990s 1Was the New Economy of the 1990s Real? 3Why Were the 1990s So Great? 5Is There Too Much Optimism or Too Much Pessimism? 7Are We Heading for Deflation Like Japan in the ’90s or the U.S. in the ’30s? 9Can the Future Be What It Used to Be? 10CHAPTER 2SOLVING THE MYSTERY: MISSING PRODUCTIVITY AND THE GREAT INFLATION MISMEASURE 11Demographics: Baby Boomers, Working Women, and the Super Bull Market 11Three Hits and a Miss 15Where’s the Missing Productivity? 15The Boskin Reports on the CPI 19“Faster, Better, Cheaper”—The Parable of the Pink Caddy 21The Intel–Microsoft Double Helix and John the Barber’s PC 23The Consumer Knows Best 24How the Government Counts Quality Improvement 26Solving the Mystery of the New Economy 28CHAPTER 3THE THEORY OF DIGITAL DEFLATION: FASTER, BETTER, CHEAPERDigital Deflation Is A Good Thing 31Digital Deflation Defined 32The Digital Drivers 35The “Next Big Thing” 39Is the Digital Revolution Better Than the Industrial Revolution? 40The Laws of Digital Deflation 41How Big Is Digital Deflation? 43What’s Missing from the GDP Deflator? 47The Lost Components 49CHAPTER 4WHY THE OLD MODELS DIDN’T WORK IN THE 1970s AND 1980s 53Economic Models Work Best in Times of Stability and Few Surprises 53The 1950s and 1960s: Existing Economic Models Worked Well 54The Late 1960s/Early 1970s: Models Break Down with the Rise in Inflation 55Internal Disruption from Wage-Price Controls 56External Disruption from OPEC Oil Price Increases 59The Late 1970s: Hyperinflation 59The Demise of the Keynesian Dynasty 60Monetarism Takes the Lead 60The 1980s: Volcker to the Rescue 62The Early 1980s: Enter the Supply-Siders 64The Late 1980s: Market Price Rule Predictors 67Demographics—Why the Traditional Models Didn’t Work 69Demographic Forces Turn Positive in the 1980s and 1990s 71CHAPTER 5WHY ECONOMISTS HAVE DIFFICULTY EXPLAINING THE NEW ECONOMY 74The Amazing 1990s—Strong Growth and Low Inflation 74Information Technology, Productivity, and the New Economy 77Overstated Inflation and Undermeasured Productivity 78Was the Internet Driving the New Economy? 80Digital Deflation—Why the Old Models Didn’t Work in the 1990s 80Productivity from Digital Deflation Is About Quality, Not Quantity 83What the Government Didn’t See… 86…Consumers and Investors Could See 87The Year 2000 Lockdown 88The Wealth Effect—A Rising New Force in the New Economy 92Is There a Corporate Wealth Effect? 95Investor-Consumers 95New Models Needed 96CHAPTER 6REDEFINING THE NEW ECONOMY 98New Forces in the New Economy 98What Is the New Economy? 99Digital Deflation Redefines the New Economy 100Old Economy Companies in the New Economy 103The Importance of R&D 106The Old Economy Will Lose Share and Profits to the New Economy 107How the New Economy Lifts Productivity 108Structural Productivity Gains 109When Did the Government Start to Measure Digital Deflation? 110How Did Computer Quality Improvement Boost Productivity in the Late 1990s? 112Massive Implications for Productivity Across the Economy 114Software Quality Improvements Are Elusive but Real 115Communication Services Are Getting Faster, Better, Cheaper 117The Huge Healthcare Quality Mismeasure 119The Service Sector Is Grossly Undermeasured 120The Service Sector Supply Chain 122Solving the Mystery of Rising Capital Spending and Declining Productivity 124The “Productivity Revolution” Is Under Way 126Disaggregation into the New Economy and the Old Economy 128CHAPTER 7NEW MODELS FOR THE NEW ECONOMY 129Better Models, Better Forecasting 129I. Demographic Models 130A Demographic Foundation for the New Economy 130The Demographic–Inflation Model 131The Demographic–Stock Market Model 135The Demographic–Productivity Model 135Demographic–Productivity Model Adjusted for Unmeasured Digital Deflation 136Demographic–GDP Models 137The Stock Market and Real GDP 137The Stock Market and Corporate Profits 139“Potential Productivity” 139II. Productivity Models 140The Capital Spending–Productivity Model Revisited 140How Long Has the Government Undermeasured Productivity? 142Productivity and Profit Margin Model 143The 120% Profit–Productivity Rule of Thumb 145The Over 3.0% Productivity Growth Rule 146The New Economy Productivity–Profit Enigma 146Are Quality Gains Empty Calories? 148The Fed’s Productivity and Capital Decomposition Model 151New Models for Predicting Information Technology’s Contribution to GDP and Productivity 153III. Digital Deflation Models 156Estimating the Undermeasurement of Digital Deflation 157The “GDP Deflator-Digital Deflation” Model 159Computer and Semiconductor Digital Deflation “Lost” As Intermediate Goods 161IT Industries Not Yet Measured for Quality Improvement, Including Computer Services, Software, and Communications 163Non-IT Industries Not Yet Measured for Quality Improvement, Including Healthcare, Financial Services, and the Military 167The Quality Improvement Quotient 172The “CPI-Digital Deflation” Model 173IV. Wealth Models 177Household Tangible and Net Financial Assets 177The Wealth Effect 181The Consumer Wealth Effect 181The Realized Capital Gains Wealth Effect 185The Corporate Wealth Effect 186CHAPTER 8THE WEALTH IN OUR FUTURE 191The 2020 Vision 191A Wide Range of Possible Outcomes 193Value Created from Digitally Driven Quality Improvement 194Two More Decades of Value Creation 196Value to Wealth: The New Economy’s Virtuous Circle 198Measuring Wealth 200Adjusting Wealth for Digital Deflation 202A Strong Demographic Foundation for Generating Wealth 203The Digital Deflation Wealth Multipliers 206The Key to Wealth Is Low Inflation 207A “Near Zero Experience” 208Picturing Zero Inflation Will Be Difficult for Many 209The GDP Deflator Adjusted for Digital Deflation 210The CPI Adjusted for Digital Deflation 212Why the CPI and GDP Deflator Will Diverge 213Which Is the Right Inflation Rate? 214Four Scenarios for the Wealth In Our Future 215Fair Value P/E’s and Wealth 217CHAPTER 9THE NEW ECONOMY STOCK MARKET 218The Importance of Equities 218A “New Economy Stock Market Model” 219Inflation, Interest Rates, and Fair Value P/E’s 224P/E Ratio Forecasts for the Next Two Decades 228Higher Productivity and Profit Margins in the Next Two Decades 229New Economy Stock Market Projections 236Two More Decades of Wealth Creation 236A New Economy Wealth Model 239Growth in Equity-Like Assets 240How Digital Deflation Helps Homeowners Build Wealth 242Digital Deflation Helps Tangible Assets by Driving Interest Rates Lower 243The Enormous Upside Potential for Wealth Creation in the United States 244On the Upside 245On the Downside 247Most Likely Scenario 248The Surprising Importance of the Real Bond Rate 248Stocks, Wealth, and the New Economy 252CHAPTER 10MONETARY POLICY: NEW “SPEED LIMITS” FOR THE FED 255The Fed’s Challenge 255A Tale of Two Economies 256Avoiding a Repeat of the 1920s and 1930s 260Learning from the 1920s and 1930s 265Counting Quality Improvement Will Make the Fed’s Job Easier 266New Speed Limits for the Fed 268Running Out of Room at the Fed 273Lessons from Japan’s Deflationary Slump 275Productivity Gains in a Deflationary Economy 278The Past and Future Fed 281CHAPTER 11FISCAL POLICY AND BETTER DATA IN A DIGITALLY DEFLATING WORLD 283Wealth and Poverty in the New Economy 283Wage Earners Will Earn More 286The New Economy, Unemployment, and Crime 288The “Politics Of Need” 290Better Data for the New Economy 292The New Economy and Budget Surpluses 294The Dark Side of Demographics 295CHAPTER 12WISE INVESTING IN THE NEW ECONOMY 299Real-World Investing 299Real-World Results 301Did the Internet Boom Spike the Punch? 304Investing Wisely in the New Economy 306Pointers for Investing in a Resurging New Economy 307The Prelude to a New Era of Prosperity 312CHAPTER 13DIGITAL DEMOCRACY: GLOBALIZATION OF NEW ECONOMY 315New Economy Entrepreneurship 315Digital Democracy 316Counting Digital Deflation and Productivity Properly 319Japan and China Can Create Enormous Wealth 320Europe Must Recognize Digital Deflation to Optimize It 322Cowboy Capitalism and Wealth Creation 326The Soviet Experiment 327Digital Deflation and the Dollar 328
Global Prosperity Will Lift All
Boats 330
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Last Modified 10/23/2003 |
