America, Home of the...Worrywart
The BusinessWeek editorial page has hardly been hesitant in describing the difficulties of the high-tech sector, the stock market drop, and the recent decline in growth. But it would be a grave mistake to exaggerate the economic difficulties that have befallen the nation. Increasingly, one hears that America faces a long "L-shaped" recession and an end to its tech-driven surge. It's time to get a grip on reality.
What's behind the gloom and doom? Stunned high-tech CEOs appear to be exaggerating what may happen on the downside with their comments about "no visibility." And because a relatively rare combination of an old-fashioned inventory cycle and a high-tech overcapacity problem, they worry it could turn unusually ugly. Some think it could get as bad as the Japanese recession of the '90s or even the U.S. depression of the 1930s.
Not so. Serious long-term recessions and depressions are produced by monumental policy mistakes. Today, policy is basically on track. Monetary policy is aggressively lowering interest rates, though perhaps not as fast as some would like. It will continue to cut rates. Fiscal policy is about to kick in as well. Big tax cuts should arrive by summer or fall.
Some see recent events as catastrophic. With the shift to 401(k)s for retirement and mutual funds for saving, families have been shocked at their loss of wealth. Dreams of retiring early are fading, and managing risk for years to come is a scary notion. Folks in their 20s and 30s, having never seen a serious downturn, worry about the unknown.
Truth is, the economy has great strengths. The dollar remains strong, inflation low. Unemployment hasn't surged, consumer spending has held up, autos and housing are strong, and the inventory correction is almost done. Who knows when overcapacity in high tech will be whittled down; it could just as well be sooner than later. This is why Federal Reserve Chairman Alan Greenspan believes there's a good shot at getting back to 3% annual growth by yearend, give or take a few months. Maybe the 75-year-old Fed chairman is right to be optimistic. Perhaps Americans shouldn't fret so.