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Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: calgal who wrote (520922)	1/7/2004 2:44:18 PM
From: calgal	Respond to of 769670

Part II: The Road Ahead Economic models come up with two very different futures. by Irwin M. Stelzer 01/06/2004 12:00:00 AM URL:http://www.weeklystandard.com/Content/Public/Articles/000/000/003/569eqzyj.asp?pg=2 Page 2 of 2 < Back Finally, the Fed might just have it wrong. It has decided to keep interest rates low, despite the soaring federal deficit, the falling dollar, and rising commodity prices. Makin thinks chairman Alan Greenspan is right to sit tight, since there is enough excess capacity to accommodate substantial growth without unleashing inflation. But Stephanie Pomboy, of consultants Macromavens, sees things differently. "Far beneath the surface," she writes, "the tectonic plates under the U.S. economy have begun to shift, revealing a molten lava river of inflation below. . . . The seeds of domestic pricing power have been sown." THE DISCERNING, and even the casual reader, might have noticed that I have so far avoided stating my own view. That is in part because I wish to be eligible for Margaret Thatcher's description of one of her advisers--"that remarkable person, a very modest economist . . ." and in part because I am skeptical that even the most sophisticated models can capture the myriad cause-and-effect relations among the phenomena that interact in a modern industrial/service economy--as the Soviet Union's best and brightest economic planners eventually learned. Moreover, in the end any model can do no more than project past relationships into the future, perhaps with adjustments here and there to reflect some change the analyst believes makes the past less than prologue. So I restrict myself to guesses and impressions. I read the employment figures to say that the economy will start adding about 150,000 jobs per month very soon, and that the unemployment rate will drop considerably from its current level of 5.9 percent by the time the elections roll around in November. Profit margins are rising sharply, a fact that probably is already reflected in share prices, but will nonetheless encourage businesses to invest in new and upgraded plant and equipment. Just in the nick of time. The end of the re-fi boom, which saw consumers cash in the rising value of their homes, the slowdown in tax refunds, and the need to pay down debt should cool consumers' ardor for the latest of everything, although an improving jobs market should prevent a serious meltdown in consumer spending. This is not to say that the pessimists are necessarily wrong; only that it seems the wiser course is to bet that the economy's momentum will carry it upward at an annual rate of about 5 percent during 2004, resulting in the Happy New year that I wish all of our readers. Irwin M. Stelzer is director of economic policy studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.