The US New Economy: The Government Role in the US Productivity Revival

In the last twelve years the US has experienced a remarkable productivity revival. This has allowed the United States to speed ahead of other major advanced economies. The article explores the contribution provided by the US government and Congress to the nurturing of the new economy. In particular it looks at the role played at macro-economic level by US monetary and fiscal policy between 1996 and 2005 and by federal funding, legislation and regulation at micro-economic level. The second part of the article discusses the future of the new economy and the factors that can support the continuation of the productivity trends of the last decade in the years to come and those that instead may determine their slowdown. If US policy-makers want to preserve an environment favorable to the new economy, they need to provide strong policy responses to two key questions: 1) How to reduce the large domestic and external imbalances that weigh on the US economy? and 2) How to reach a fairer distribution of the benefits of the new economy so as to avoid being led down the dangerous path of creeping protectionism?