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.
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 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
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
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.
, 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