Welcome The New Economic Era
February 3, 1999
Former Federal Reserve governor Wayne Angell contends the U.S. economy has entered a new economic era and the bubble of prosperity won't burst. The keys to continued growth, he reasons, are sound money coupled with continued development of information technology.
The notion that rapid economic growth causes inflation has finally been put out to pasture.
He cites five characteristics of the new-era economy:
- A much faster sustainable growth rate than previously expected -- which has generated faster profit growth.
- A decline in inflation to near zero -- aided by cost cutting among businesses.
- Longer economic expansions -- with the economy in recession a much smaller portion of the time.
- Unemployment rates trending lower -- with new-technology capital enhancing labor productivity, thereby pulling wage rates higher.
- Tax receipts that rise faster than projections -- generating budget surpluses at the federal, state and local levels.
Factors which might bring an end to this vibrant new economy are a rise in protectionism and challenges to high-tech entrepreneurs, such as that posed by the Justice Department's case against Microsoft.
On the other hand, freeing investment income from taxation "would lower the cost of capital, increase labor productivity and provide for a significant rise in the wages of workers," Angell writes.
Source: Wayne Angell (Bear Stearns), "The Bubble Won't Burst," Wall Street Journal, February 3, 1999.
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