Best Times of the Twentieth Century

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By JOHN CUNNIFF, AP Business Analyst

The Associated Press, 01/12/99

"NEW YORK (AP) -- What a strange world it is. With at least a third of the world's economies in serious trouble, Americans are enjoying the best economic times in three decades.

Growth has exceeded 3.5 percent for three straight years, unemployment is at a 28-year low, wages are rising, stocks seem to have no limits, inflation is benign, money is easy and spending is unrestrained.

But that may not be enough to satisfy. The price-earnings ratios of stocks, which average under 20 over the long term, are now nearer 30, and judging by the bullishness may be headed higher still.

After the major part of a decade of improving fortunes, you might think that consumers would have surrounded themselves with all the stuff their money could buy. But now they are borrowing to buy even more.

"The world economy is so strange these days that we are not even sure what to worry about," says David Wyss. And he, being the economist at Standard & Poor's "U.S. Economic Service," is rather well informed.

The economy, he says, "may be too strong to keep inflation under control, but the risk of a 1999 recession is still significant." The Federal Reserve fears inflation, but manufacturers fear deflation. Consumers are overspending, but if they don't it could mean recession.

Who can figure it out? "The United States is walking a tightrope between these risks, but so far shows no sign of falling," says Wyss, who is rare among economists in confessing that it is indeed confusing. ...

Economic times have become so positively charged with confidence and acquisitiveness that America's households raised their spending 4.9 percent last year while their gains in disposable income rose just 3.1 percent.

This is a very visible change of personality, because in years past consumers seemed instinctively to cut their spending during the late stages of an economic advance, not wishing to become cash poor.

This time, it is their spending -- cars, houses, cruises, sports, tuitions -- that keeps things going. They are earning good money -- averaging $12.98 an hour, a gain of about $1.35 in three years -- but spending ever faster.

The way you do this, of course, is to borrow. "Banks will lend you money if you can prove you don't need it," said Mark Twain, and his truth marches on. Consumers borrow with plastic, of course, and with nerve.

If you ever think people aren't different today you are overlooking how recently the opposite behavior was the norm. People today are borrowing on the house. Their parents thought it was a sacrilege to do so.

The uses of that money also represent a great change.

Borrow to invest in stocks? The idea seems strange, even shocking, to folks who were young in an earlier time, when paying off the house, not borrowing on it, was one of the great goals and accomplishments of life.

And then there is that question begging to be asked: If the baby boomers, now in their midyears, are so concerned with saving for the future, where can you find evidence of it in the official statistics?

Strange. As "anonymous" is said to have said: "Whoever said money can't buy happiness didn't know where to shop.""

By JOHN CUNNIFF, The Associated Press, 06/14/99

"High-tech makes the difference

NEW YORK (AP) -- Few seers and probably most Americans failed to foresee the productivity surge that has lifted the U.S. economy into its current high orbit.

To the contrary, pessimism was widespread in the late 1980s and even into the 1990s, and it wasn't uncommon for professors to speak of the economy in the past tense, as if its best days were over.

"An economy that 20 years ago seemed to have seen its better days is displaying a remarkable run of economic growth," Greenspan, chairman of the Federal Reserve, told Congress this week ...

Americans lacked confidence. They were pessimistic, so much so that Greenspan expressed it to Congress in 1992 as "a sense that there's something foreboding out in the longer term."

He described it as "to a large extent a concern about whether or not their children and grandchildren will have standards of living comparable to their own."

Shortly thereafter, that generation began its ascent into the outer space of material living standards. The ratio of families owning homes reached a record high, unemployment a record low.

The economy's improvement, Greenspan said this week, "appears to have its roots in ongoing advances in technology" that reduced production costs, the one sure way to raise standards.

Lower-cost production meant lower prices and more sales. And more sales meant more jobs and more earners. And while earners spent rather than saved, those lower costs kept inflation at bay.

What spurred business to invest in high-tech equipment such as computers and fiber-optic cable, and to innovate in management and marketing?

Competition. The threat from Europe and Asia, for example. To innovate was the only way the United States, a high-wage nation, could compete in the new global economy. And that's what it did.

And as the economy underwent this fundamental change, a new factor, opportunity, evolved. Accomplishments created more opportunities and became the base for new technological visions.

While seemingly awed by productivity's accomplishment, which wasn't widely understood as recently as two years ago even by those with economic microscopes, Greenspan is again worrying.

"The growth of productivity cannot increase indefinitely," he told Congress. Earlier he had made clear his view that inflation remained a threat and that higher borrowing rates might be needed.

There are indeed signs of overexuberance, in the stock market and in the easy acceptance of the notion that continued gains in productivity will be the economy's vaccine against inflation.

With unemployment at its lowest in decades, and the hot economy demanding even more workers, cost-reducing technology may not be sufficient to offset the use of marginally productive workers.

It is Greenspan's job to worry, especially when events and opinions become so exuberant that nobody else seems concerned. And it has become his policy to publicly air his views before acting ..."


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