Jewish World Review March 9, 2000 /2 Adar 2, 5760
http://www.jewishworldreview.com -- HERE COME THOSE QUESTIONS again: Are we witnessing the end of the business cycle as we know it? Are we now in a "New Economy"? Is this the fabled "New Paradigm"? The answers will likely effect the future standard of living of most every American from birth to retirement. And the answers to all the questions, I think, are "probably so," but perhaps not for the reasons most commonly heard.
The new round of huzzahs for the economy has been triggered by a statistic: As of February, the United States is now in its longest economic expansion ever: 107 months without a recession. Moreover, in the last six years the growth rate of the inflation-adjusted Gross Domestic Product (GDP) has averaged 3.9 percent per year, and 4.1 percent in the last four years. Moreover, some economists regard the shallow recession during 1990 to 1991 as an anomalous blip triggered by the war in Kuwait. That would put the current expansion back to 1982 -- eighteen years, a generation.
A new economy of this sort surely sounds good, but most mainstream economists have pooh-poohed the idea of such a new paradigm. It was all promoted by young whipper-snappers who hadn't lived through enough history, they said. Just wait, they harumphed, same-old same-old, recessions will come sooner or later, the business cycle lives on forever.
And this is not a troglodyte's argument, by any means. After all, nine years is just a bit of history; even 18 years isn't forever.
Now, however, there may be a new convert to the cause, the Delphic mainstream oracle himself, Alan Greenspan, who said this at the New York Economic Club in January: "It has become increasingly difficult to deny that something profoundly different from the typical post-war business cycle has emerged." (Like a good oracle, he says other things as well, which may or may not be contradictory.)
The best case for a new economic paradigm doesn't just go back 18 years. It goes back 55 years to 1945 and the end of World War II -- and then back further yet to 1890. In his book "Miles To Go" (Harvard University Press, 1996), Senator Daniel P. Moynihan puts it in a nutshell. He writes: "Between 1890 and 1945, the real growth in the economy dropped by 5 percent on three occasions, by 10 percent on two occasions, and on two other occasions dropped almost 15 percent." By contrast, Moynihan points out, " Since, 1945... there have been five mild declines, and only a single serious one, that of the recession of 1982, say 2-3 percent."
As Greenspan said of a shorter time frame, "profoundly different." Seen on a graph, these economic movements look like a series of crashing tidal waves followed by a set of ripples. The tidal waves created a crushing flood of bitter unemployment; the ripples created temporary discomfort, although on an individual level, any economic discomfort is not to be gainsaid.
So isn't the right place to start thinking about a new economy, or a new paradigm, back in the late 1940s? That's when the business cycle went from tide-like to ripple-like.
And now from Ripple-land the elemental question is: Is it plausible to suggest that we're not going to see any more recessions? (Often but not exclusively described as two or more consecutive quarters with negative growth in the GDP.)
There are several ways that may come about: shallower swings, shorter durations, higher growth or combinations thereof. According to Anirvan Banerji, co-director of the Economic Cycle Research Institute, "Aside from a decade or so of oil shocks, we've seen shallower and shorter recessions, and that trend continues."
During the average post-war recession the economy dropped by about 2.9 percent. The numbers get somewhat muddled, but if the economy continues to grow at about 4 percent, then a 2.9 percent drop doesn't lead into negative territory. Durations of recessions are indeed getting shorter. The 1990 to 1991 recession lasted eight months; from 1945 to the present, 11 months; 20 months from 1854 to 1945.
It's still not perfect, by a long shot, and never will be. We will surely see harsh contractions in specific sectors of the economy or in certain regions. Agriculture is going through very tough times now. California took a dive when defense industries were cut back after the end of the Cold War. The mid-continent Rust Belt took time to scrub the corrosion off old industries. At different times the Oil Patch and New England took tough hits, with millions of people suffering. Internationally, too: The "Asian Contagion" of 1998 threatened to take down the whole economy.
The argument for the New Economy acknowledges such regional or sectorial
changes and seems to indicate that the diverse and changed American economy
more than makes up for them. The big change has been going on for 55 years,
and that's a looong time. Moreover, the economy seems to be getting
marginally better as time goes on. Steady as she goes would keep us out of
negative territory. And that would be the end of the business cycle as we