Skip to main content

This week Fed Chairman Alan Greenspan stands before first the Senate and then the House to talk about the state of the economy in his semiannual Humphrey-Hawkins testimony. As part of this, he will tell Congress how much the Fed thinks the economy will grow this year. And what the rate of unemployment will be. And what inflation will do.

And if this year is anything like the past few years, those estimates will be wrong.

Consider: When Greenspan gave his

testimony last February, we heard that the Fed expected 1998

gross domestic product

to grow no more than 3% (it grew by 4.1%), while the unemployment rate would sit at about 4.75% (it was 4.4%) and the

Consumer Price Index

would gain 1.75% to 2.25% (nope -- 1.5%).

Remember at this point that these people didn't know that Russia, Brazil and

Long Term Capital Management

were coming. Had they known, their estimates would probably have been pessimistic. Yet still the economy ended up being rosier by all counts than what they supposed would happen (and what they supposed would happen was pretty rosy).

We are eight years into the longest peacetime expansion the U.S. has known, and it shows little sign of abating. Time for things to slow down? Sure, plenty of economists say that's going to happen (and they've been saying it for a while). But then a few weeks ago we saw that fourth-quarter


grew by 5.6% and now economists are upping their first-quarter estimates. Where's the slowdown?

To say the economists are flummoxed is an understatement. It's almost like taking a couple of Pleistocene biologists and throwing them into the modern era. Sure, plenty of things are the same. The sky is blue. There's photosynthesis. Now where the heck did the mastodons go?

So in this Humphrey-Hawkins week, we're going to take a look at the economy and try to pin down some of the things that are different about it. And what things aren't.



economics correspondent

James Padinha

focuses on the notion that there is some level where a low unemployment rate starts heating up the economy -- what dismal scientists call the

nonaccelerating inflation rate of unemployment

. Over the past couple of years, a chorus of new-era economy types have pointed to the low unemployment and inflation rates, intoning, "NAIRU, schmairu." Not so, argues Padinha. NAIRU's no mastodon. More like a platypus. Or armadillo. Or some such thing.

If you want to find a guy who believes in the new-era economy -- someone who, were he not a gentle soul, would try to pick a fight with you if you voiced belief in the Phillips curve -- look no further than Editor-in-Chief

Dave Kansas

. Dave takes a look at the way the global economic crisis was supposed to put the brakes on the U.S. economy. It didn't, of course, which says something about how things have changed.


, two related stories. Markets reporter

Dave Gaffen

takes a look at the way the U.S. has shifted away from manufacturing and toward technology and the service sector. Problem is, economists are still using manufacturing to try to take the economy's pulse. No wonder they're confused.

And I'll look at the widening gap between rich and poor. It's the downside of that shift in economic focus. Still, there have been encouraging signs recently that the gap is ready to narrow again.


, senior markets writer

Aaron Task

argues that if there was a new-era economy, it was the one we saw from the late 1960s through the early 1980s -- a period in which commodity prices rose at an unnatural rate. Looked at this way, the drop in these prices, which drove inflation lower, was really just a return to the norm.

But columnist

Jim Griffin

, chief strategist at

Aeltus Investment Management

, says things really have changed. Just as the economic model he learned at school in the '60s tended not to be very helpful for understanding what was going on in the '70s and '80s, he maintains, the economic model that developed in the '70s and '80s isn't so helpful for understanding today's global picture.

Thursday, Feb. 25

New Era My Fanny: Debunking the Myth

by Aaron L. Task

Economists' Chainsaw Logic

by Jim Griffin

Wednesday, Feb. 24

In What Condition Is Our Condition?

by David A. Gaffen

Minding the Gap

by Justin Lahart

Tuesday, Feb. 23

New Thoughts on Growth and Inflation

by James Padinha

Which Way Is Up? The Fed Goes Global

by Dave Kansas