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To: GST who wrote (48625)	2/9/2000 3:18:00 AM
From: long-gone	Respond to of 116762

good read: Andrew Smithers' weekly column in the -------------------------------------------------------------------------------- The future fantasy may be overtaken by harsh reality. Monday 7 February 2000 Not only has the Bank of England had to raise interest rates, but it is likely that it will need to raise them again before the economy slows. Some people, however, who believe in the new paradigm are against such prudence. Although economists as a group are notable for their courtesy and integrity, they occasionally disagree among themselves. They are doing so today over whether the new paradigm exists. If it does, Britain and other developed economies can grow much faster than before; if it doesn't, they cannot. If the new paradigm is real it will transform the future, due to the remarkable power of compound interest. Small changes in the rate of growth are almost imperceptible over one or two years but, if maintained, they would have a dramatic impact on living standards. Britain's gross domestic product per head is œ14,250 and has been growing at around 1% a year. If things go on at this pace, the next generation in 30 years time will be a third better off. But if incomes grow at 3% a year, they will be nearly three times richer than today. Instead of œ19,000 a head, the average man, woman and child will have œ40,000 to live on. That is real money with inflation excluded. If the Bank of England hits its inflation target the figure, in current money, would be œ84,000 a year. The difference is so great that we would almost be looking at different worlds. If the past is another country, the future could be two completely different countries. The natural and sensible response is to hope for the new paradigm, but not to bet on it. Its supporters, however, usually want us to bet on it. They fear that, like Tinkerbell in Peter Pan, it will become extinct if we do not believe in it. The outward sign of faith, for which the new paradigmers call, is an easy money policy. They fear that lack of faith will cause monetary policy to be too tight. Demand will then fail to keep up with potential supply, (cont) smithers.co.uk