Opinion Editorial | |
| Monday, November 15, 1999 | |
Sustaining New Era Economic Growth |
On October 28, the U.S. Department of Commerce released revised data on growth in the U.S. economy that show significantly faster growth, more saving and investment, and higher productivity than previously reported (see figure). They provide strong support for the idea that the U.S. economy has entered a "new era" of faster growth without inflation.
Speaking the same day the new statistics were released, Federal Reserve Chairman Alan Greenspan talked about ways in which the Internet and computer technology are fundamentally changing the U.S. economy. Their main impact is on providing businesses with better and more accurate information. This has improved delivery times and reduced the number of work hours necessary to produce goods. The result is that the economy is able to produce more with less.
This creates a "virtuous circle," Mr. Greenspan says. "A whole new set of profitable investments raises productivity, which for a time raises profits--spurring further investment and consumption. At the same time, faster productivity growth keeps a lid on unit costs and prices. Firms hesitate to raise prices for fear that their competitors will be able, with lower costs from new investments, to wrest market share from them. Such circumstances lead to a very favorable period of strong growth of real output and low inflation."
The question is, How long can this go on? Is this just a temporary trend or the beginning of a long wave of higher growth and productivity?
Economist Brian Wesbury argues strongly that the new era will be with us for some time to come, with enormous implications for the economy and individual well-being. In "The New Era of Wealth," just published by McGraw-Hill, Wesbury identifies several key factors that are creating and sustaining the new era. First is the technology revolution of computers and the Internet. Second is the globalization of economic efficiency, as the world evolves into what is truly a single market.
The third trend is the end of big government. Wesbury believes that old fashioned liberalism and socialism are dead for good. Even leaders of the political left -- like Bill Clinton, Tony Blair in England and Gerhard Schroeder in Germany -- now seek to nurture growth through the private sector rather than government.
Lastly, Wesbury thinks that the Federal Reserve has finally gotten monetary policy right. The result is that inflation is dead, which will lead to low interest rates and an end to the boom-and-bust economic cycle.
If Wesbury is correct, those forecasting the Dow Jones Industrial Average at 36,000 may be way too conservative.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, November 15, 1999.
For Commerce Department data http://www.bea.gov/bea/bench.htm
For info about the Wesbury book is available at
http://www.books.mcgraw-hill.com
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