Economic Forecast: It's Worse Than You Thought

Someone finally put the notion out where everybody can hear it: The current economic malaise might not be the bust part of the normal boom-and-bust economic cycle, but something more profound and long-lasting. The recovery, in that case, will be measured not in quarters but in years.

Because it was Alan Greenspan doing the talking, of course, a bit of translation is in order. Here's what the Federal Reserve chairman told the Senate Banking Committee earlier this month: Once the uncertainty caused by impending war fades, we'll know "if we are dealing with a business sector and an economy poised to grow more rapidly -- our more probable expectation -- or one that is still laboring under persisting strains and imbalances that have been misidentified as transitory."

In other words, the Federal Reserve still believes that we're in a normal business slump caused by a collapse in capital spending. That slump, it figures, has been extended by the unwillingness of businesses to invest because of the uncertainties created by the possibility of a war with Iraq. Once those uncertainties vanish, businesses will begin spending again, and the Federal Reserve's interest rate cuts will be enough to get the economy rolling again. That's the Greenspan hope and the outcome that he thinks is most likely.

But he won't rule out the possibility that this isn't just a normal slump and that there are structural problems in the economy that won't easily respond to the Federal Reserve's available medicine.

Greenspan's Vague Suggestions

What kind of structural problems? Greenspan didn't get specific -- and that's too bad. The investing press is already full of books and newsletters about the coming depression, and Greenspan's vagueness is likely to add fuel to that fear-mongering.

So let me step in and make explicit what I think Greenspan was hinting at. The possibility facing the economy and investors isn't another Great Depression or anything like that. Instead, we're looking at a replay of the massive restructuring of U.S. business that took place in the late 1970s and 1980s.