The Economic Future in the Year 2000 :: essays papers

The scotch Future in the Year 2000 The economy has performed exceptionally well for the past several years, combining rapid harvesting and very low unemployment with declining rising prices. Not only has the expansion achieved record length, but it has done so with far stronger growth than expected, stated Federal Reserve Chairman Alan Greenspan in his remarks to the National Community Reinvestment Coalition annual conference in Washington (Business Week, The McGraw-Hill Companies, Economic Outlook, March 6,2000). Figures show that since 1996, the growth of GDP has averaged more than 4 percent, compared with an average of about 3 percent since 1973. Because of those four years of rapid growth, the unemployment rate has locomote to 4.1 percent, its lowest level since January 1970. Consumer Price Index (CPI) inflation, excluding food and energy prices, had been vacillating at about 3 percent per year earlier in the ten but was roughly 2 percent over the past year (Bank of Amer ica, Economic in Brief, November 1, 1999). Much of the auspicious recent economic developments can be attributed to a surge in productivity growth. Alan Greenspan noted in his statement that output per hour in the non-financial corporate sector had increased since 1995 at roughly double the average pace of the preceding 25 years (First Union, Monthly Economic Outlook, March 7, 2000). This rapid productivity growth allowed the economy to grow at a faster pace without raising the rate of inflation. However, the growth of consumer affect is exceeding the increase of productivityboosting employment, tightening labor markets, and raising concerns that recent growth rates may not be sustainable without sparking a rise in inflation. After spending the past several years, extolling the virtues of improved productivity in allowing higher growth with less inflation, the Federal Reserve Chairman, seemed to turn the tables in his Humphrey Hawkins testimony, stating that the spurt in prod uctivity has produced expectation of higher profit growth, which, in turn, perk up resulted in higher equity valuations. That surge in equity prices is seen as the primary driver of the wealth effect, which he believes has created an imbalance between demand and supply, raising inflation pressures (Business Week, The McGraw-Hill Companies, Economic Outlook, March 6,2000). Speculations of this occurrence may over the long term indicate that the higher the trend growth of productivity, the lower the inflation ratedue to the restraint of labor costs.