Half of America has invested in the stock market. The market is now central to any debate about the future of Social Security. In the Knowledge Economy, however, conventional financial reports are increasingly less accurate and relevant. In these circumstances, how does an investor assess the validity of stock prices, and how will company values be communicated in the future?
Today's knowledge-based economy requires a new framework for corporate disclosure. The authors envision an entirely new system of assessing the value of companies--a system tapping the vast communication capabilities of the Internet. Corporate financial reporting would become forward-looking, would be based on precise, comparable measures, and would be presented in real time.
Robert E. Litan is the vice president and the director of the Economic Studies Program and Cabot Family Chair in Economics at the Brookings Institution. He is also the codirector of the AEI-Brookings Joint Center for Regulatory Studies. Peter J. Wallison is a resident fellow at AEI and codirector of AEI's program on financial market regulation.