This way of thinking has been embraced by proponents of the new economy. They proclaim that the new electronic technologies have been harnessed to deliver improved corporate profits and federal budget surpluses that are sustainable for a long time to come. Whether these claims are true has ceased to be an academic matter. Economists and Wall Street are debating whether the Federal Reserve should increase interest rates to forestall a new inflationary cycle. More is at stake than the string of unprecedented stock market gains: An inflation-induced recession may affect the outcome of the presidential elections. The question of whether information technology has improved productivity is now at the center of the economic stage.

"... it would be like arguing that rich people are rich because they buy expensive cars."

Thus it was that the Federal Reserve's Board of Governors - the most powerful financial policy body in the world - decided to devote its April 15 meeting to hearing evidence about technology-induced productivity gains. I was one of the invited experts, along with senior economists from Harvard, McKinsey Research Institute, MIT, Princeton, Stanford and Yale.

The opinions offered to an attentive board, chaired by Alan Greenspan, were diverse. With the exception of the presentation that correlated purchases of computer capital with gains in stock market valuations, all of the opinions were based on admittedly inconclusive government statistics.

My own presentation (www.strassmann.com/pubs/frb-041599.pdf) reviewed the rising productivity of 1,586 U.S. industrial corporations since 1990. The gains could be verified from annual financial reports. The analyses showed that much of the potential gains from computerization were absorbed by the rising compensation of the U.S. information workforce, which includes the fastest-growing occupations such as computer professionals, consultants and lawyers. It wasn't the lower costs of information management but the rising economic value-add of U.S. firms that made the productivity numbers go up.

Did the economic value-add gain because firms were more effective as the consequence of computerization? The answer came after examining the impact of steadily declining interest costs on corporate profits. Had the interest costs remained unchanged since 1990, there would be no productivity gains at all. That proved that the cleverest U.S. monetary policy-making since Alexander Hamilton should take the credit for productivity gains.

What does all this economic analysis mean for CIOs? Simply this: Don't take credit for productivity gains you didn't create. Don't claim that your firm's rising computer spending was responsible for increased profits and stock market valuations. There's no causal link between the two; it would be like arguing that rich people are rich because they buy expensive cars. The value of IT can be demonstrated only after proving that the increased economic value of an organization wouldn't materialize by other means. That evidence will be increasingly sought by corporate executives. CIOs better get ready with verifiable answers.