What will Alan Greenspan think?

Posted: Thursday, October 05, 2000

NEW YORK (AP) -- Just suppose consumers are right about the economy, which often they are in spite of their reputation as innocents. What will Alan Greenspan think? What will he do?

This is what they told the University of Michigan surveyors in September: We may be temporarily wary of conditions over the next year, but we still anticipate nonstop growth for five years ahead.

This is a stunning level of long-term optimism, the most optimistic in the 50-year history of Michigan's monthly surveys of consumers, a lifespan that encompasses some pretty good times.

More stunning is that this level of confidence comes at a time when almost all the old economic texts -- and some of recent vintage too -- assure us that expansions do not, cannot, last this long.

To rephrase: This expansion has already broken the longevity record and, according to the economic textbooks that instructed us, should be in doddering old age rather than climbing mountains.

There is a dream quality about the seemingly outlandish idea of an old-timer planning the ascent of even more peaks, but optimism can never be discounted. It can be self-fulfilling.

In an economy which, it is often said, the consumer is king, the courage to go out and insist on more goods and services can generate a series of energetic responses from suppliers, producers and retailers. It explains why there are so many consumer surveys.

Consumers, of course, need jobs to be optimistic, but that same optimism also helps generate jobs. Still, nothing stands unaffected by other factors, many of which are beyond consumer influence.

Such factors as the price of oil, for example, or the availability of raw materials, the attitude of foreign investors, wars, natural disasters, government policies.

But if consumers are right, you can expect:

--Rising inflation concerns at the Federal Reserve, which was among the laggards in accepting the possibility that this expansion could possibly be unique. It could lead to higher interest rates.

If confidence several years ago was labeled ''irrational exuberance,'' what labels this current level of optimism?

--Not much improvement in the savings rate, which has been near zero, leaving much of the industrial and government financing dependent on foreigners, who may be less confident than Americans.

--Growth in discretionary income, or income left over after paying for necessities. It could support a strong stock market, automobile sales, homebuilding, entertainment, travel, retailing.

--Naysayers. They always appear when economic heights are scaled, exploiting the belief that humans are inherently fearful of heights. Fear sells books, as in ''The coming ... .''

What consumer attitudes today are declaring is that we haven't seen anything yet. They could be right, they could be very wrong. The risks grow larger as you try to penetrate the unknown future.

By itself, consumer optimism can carry the team for a while. It's those extraneous factors that aren't exactly team players. They can't always be counted on to support consumer thinking.

And, finally, what will Alan Greenspan and his associates at the Federal Reserve, who can slow the economy by raising borrowing rates, think about such confidence?

End Adv PMs Tuesday, October 3

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