MORE ON THE NEW ECONOMY
We just got an additional dose of information concerning the New Economy. The Commerce Department reported last week that the economy grew at a more rapid rate during the fourth quarter than had originally been estimated. The Department now says that for the final three months of 1999, the economy raced ahead at a blistering 6.9% annual rate, while inflation, whether measured by the so-called "personal spending gauge" or the "price-index deflator," was unrevised. It remains at a low either 2.5% annual rate or 2% annual rate, depending upon which gauge you use. This, despite what the Federal Reserve says, is further evidence that our economy is capable of growing far more strongly than they expect.
The Federal Reserve is still trapped in some old thinking that says that the economy cannot grow much beyond 3.5% a year without triggering inflation. In effect, they have said 'Don't confuse us with the facts, our minds are made up; what has happened over the last several years just can't be happening.' They modify that slightly when they say, 'It can't continue to happen indefinitely.'
Of course, I am humbled by the presence of Alan Greenspan-I really mean that. He is, in my mind, without a doubt, the best Fed Chairman we've ever had. Yet that does not make him infallible. So, Mr. Greenspan says, "This cannot go on indefinitely," I respectfully ask the question, "Why not?" Who can put a speed limit on our New Economy, or who can tell us when it will derail? Obviously the Fed can't, they have been wrong for a number of years.
As we have said so often in this space, on the radio and in our state-wide seminars, one of the most important ingredients in our current "miracle economy," is, in fact, productivity. You remember the definition for productivity from Econ. 101-- productivity is nothing more than output per worker hour. Simply stated, if I give you a 3% pay increase, but you are only 2% more productive, then it is not good for the company, and it is inflationary for the country. But if I give you a 5% pay increase, and somehow you become 6% more productive, then it's good for you and for the company, it is not inflationary and it's good for the country. So, at the present time in this New Economy/New Paradigm that we're in, technology is increasing productivity more rapidly than, apparently, anyone can measure. And productivity is helping the American worker immensely. It means that they can produce more products at lower prices, creating more opportunity for everyone, without necessarily triggering inflation. For those of you who still have trouble believing that, you are merely, like the Fed Chairman, disbelieving the current reality. As we tell our clients, when we see a change, when something isn't working any more, we will tell you. But in the meantime, go with the flow. Whether you call it a New Paradigm or a New Economy, there is something very different going on in our country, and it seems to be continuing, at least for the present.
America has been through other "economic revolutions," this is not new for us. The Industrial Revolution, the replacement of the horse with the automobile, the telephone replacing the telegraph, electricity replacing kerosene, the airplane replacing passenger ships, freeways replacing railway lines, television replacing radio, cable replacing antennas, etc. Each revolution seems to come about faster than the one before, and this is no exception. So, deny it if you will, but again, if you're going to deny the new economy, you're denying your current existence.
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Something that ties into our still nearly perfect economy is, I think, that the future for oil prices is lower not higher-- $30 a barrel, most experts will tell you, is probably not sustainable for oil prices over too long of a time. OPEC members will start to cheat on each other. Above that, look at the calendar-spring is right around the corner (oh, yes, it is). Home heating oil has been one of the major problems for oil prices this year, but we're not going to be using a lot of home heating oil come May, June and July. So, with oil prices starting to trend lower in the second quarter, it will be another nail in the coffin of the inflation gremlin. And again, the economy may not be perfect, but it's pretty darn good.
(Tom Butenhoff is a First Vice President with J. E.
Liss & Company in Milwaukee. The views are his and not necessarily
those of Liss Financial Services or the Job Connection/Hiring
Network.)