Seattle rode the wave of the New Economy, yet the downside remains

I saw a headline this past Sunday that said, “Economists still trying to figure out the new economy.” The story concerned missed forecasts about inflation rising yet the economy booming despite rate hikes from the Federal Reserve.

But the headline also took me back to the time when the New Economy was capitalized and had an entirely different meaning.

This was when I was a business editor in the 1990s and I had the privilege of directing staffs that helped cover what seemed like a world historical moment.

The Soviet Union was consigned to the dustbin of history (a phrase attributed to Trotsky), capitalism was triumphant, and even nations that remained nominally communist were embracing market economies.

Not only that, but market economies were innovating and increasing productivity thanks to “high technology.”

This was the cornerstone of the New Economy, a phrase that originated in the previous decade. The first published reference may have been a Time magazine story in May 1983.

Seattle was one of its stars, thanks to the decision of Bill Gates and Paul Allen to relocate their small software company from Albuquerque, N.M., to suburban Redmond in 1986. Microsoft became a public company that same year.

But the New Economy really found its footing in the 1990s as advanced technology spread across industries and nations, increasing productivity (and thus wages) and opportunities for workers and entrepreneurs. Boeing increasingly engineered its airliners using computers. The 777 was the first airliner to be developed using computer-aided design.

The U.S. economy experienced its longest boom in history.

The dot-com era took off, leveraging the power of the internet and rising ownership of personal computers — usually running Microsoft software — and giving birth to such companies as Amazon.

The New Economy and Seattle also entranced Hollywood, with the 1994 Demi Moore and Michael Douglas movie “Disclosure” set in a tech outfit located in Pioneer Square.

No wonder that in a 2000 speech, Alan Greenspan, then chair of the Federal Reserve, said, “we are in a period of rapid innovation that is bringing with it enormous opportunities to enhance living standards for a large majority of Americans.”

But the New Economy was about more than tech.

It meant rising levels of trade. The United States was the largest exporting nation on the planet then, so NAFTA, linking Canada and Mexico with America in a trading bloc, was an easy sell, going into effect in 1994. That same year, the World Trade Organization was established. It filled the ports of Seattle and Tacoma with container ships from the Far East.

Americans enjoyed low-priced products from around the globe. Trade lifted millions of people around the world out of poverty.

To be sure, it had its critics. Riots erupted during the 1999 Ministerial Conference of the WTO held in Seattle. Protesters criticized the organization’s alleged violation of the rights of people in developing nations.

With China joining the WTO, its export power brought what economists call “the China Shock,” costing millions of American jobs, especially in manufacturing and especially in the industrial Midwest.

The New Economy also signaled the hope for a rising stock-holding middle class. More people owned shares indirectly through mutual funds and it appeared as if increasing numbers were owning stocks directly, too. The internet powered online stock trading. The Nasdaq, packed with tech companies, came to rival the New York Stock Exchange

At Knight Ridder in the late 1990s, I began one of the first newspaper “weblogs” (blogs). I named it Shareholder Nation and it posted every business day with a recap of market news and, for a bit of fun, a Shareholder Haiku. I carried the latter over to my first years at The Seattle Times as an Econ Haiku.

Starbucks went public in 1992. Amazon survived the dot-com crash and went public in 1997. To be sure, stockbrokers sold shares to their prized clients at first.

The New Economy also meant a new premium on certain kinds of work.

In 2002, Richard Florida’s highly influential book, “The Rise of the Creative Class,” was published. Florida, then a professor at Carnegie Mellon University in Pittsburgh, argued that regions with high concentrations of tech workers, musicians, artists and LGBTQ+ people added up to higher levels of economic development. They congregated in welcoming, diverse cities such as Seattle.

Florida cautioned that the creative class was no cure-all. He urged that workers be retrained for creative professions, that pathways be established for service workers to enter the creative class.

The New Economy enjoyed the “Great Moderation,” years when the economy was characterized by low inflation and interest rates, as well as rising gross domestic product and overall incomes. It also was a time before human-caused climate change became evident as an existential challenge.

But it couldn’t last. Increasing financialization of the economy led to risky bets on subprime mortgages — a key player being Washington Mutual — and murky but dangerous maneuvers on Wall Street. The collapse came in 2007 with the Great Recession.

Maybe it ended sooner. Virginia Tech professor of science, technology and society Lee Vinsel offered this benediction:

“ ‘The New Economy’ died in 2002,” he wrote. “I think this moment is worth studying because in many ways it was [a] noteworthy exception to American economic doldrums from the 1970s to the present, and looking at it allows us to see how intelligent people bought into a story and made bad projections based on momentary prosperity.”

Perhaps. But one could also argue that the New Economy is simply today’s economy, like it or not.