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The Economic Boom: How Big, How Broad, How Long? In February 2000, the current U.S. economic expansion became the longest in history, but some forecasters think it still has a very long way to go.  By Michael Lindemann Start Date: 2/10/00 Harry S. Dent is bullish on the future. A renowned business consultant, economic forecaster and author of the bestselling book "The Roaring 2000s" (Simon & Schuster, 1998), Dent says that the next decade, up to about 2009, will be the greatest period of economic growth in U.S. history. Moreover, he says, the boom will extend to many other nations as well. Dent's upbeat views aren't new. In 1989, as the U.S. economy was going into recession, he wrote that the decade of the 1990s would see a major surge of economic growth and wealth production. In 1992, in his best-known book, "The Great Boom Ahead," he predicted that the Dow would top 10,000. This was just as the U.S. was starting what would become, as of February 2000, the longest economic expansion in the nation's history. But that's nothing, says Dent, compared to what's ahead. Dent is not alone in his upbeat views. The Feb 14, 2000 edition of Business Week magazine made the U.S. economic boom its cover story and sought to explain why it has run so long and is still so strong. Among the many contributing factors are:
But topping Business Week's list: the rise of information technology and the Internet. "The Net's birth as a commercial enterprise was in March, 1991 -- the same month that the current economic expansion began. Coincidence? Of course. But over the past couple of years, the two have become inextricably linked," declares Business Week, quoting former Labor Secretary Robert B. Reich, who believes that "70% of the credit for the expansion belongs to computers and the Internet.... 'Everything else pales in comparison,' he says." Whatever the causes, it all adds up to a very rosy picture. Despite some worries that the stock markets could suffer a major correction this year or next, "the prevailing wisdom is that the U.S. economy is stable -- and poised for more years of healthy growth," Business Week says. Indeed, a market correction may be inevitable, but it's not likely to stop the general upward trend. "I could easily see this economy growing right through a stock market decline of 1987 proportions," says Alan Blinder, professor of economics at Princeton University and a former vice-chairman of the Federal Reserve. While no one denies that the current boom is remarkable, some do warn that it is also promoting an unreasonable belief that the so-called New Economy is somehow exempt from the kind of business cycles that have characterized previous eras. This is dangerous nonsense, says Business Week economics editor Michael J. Mandel. "Long-term productivity gains are certainly real and will continue. But nothing about the New Economy rules out business cycles," he writes. "Quite the contrary: The same forces that propelled the economy to its current heights put it at greater risk of a sharp downturn. Sooner, rather than later, the New Economy boom is likely to be followed by a New Economy bust -- a recession and stock market decline that could be much deeper than most people expect." Because this boom has been so dominated by growth in the technology sector, Mandel says, it is increasingly vulnerable to disruption as various parts of the tech market mature and inevitably slow down their enormous growth phase. This won't happen all at once, but it could start happening soon. Mandel says the entire situation is eerily reminiscent of the economic boom of the 1920s. Then, as now, "inflation was low and productivity was high. Meanwhile, led by the new technologies of the day -- automobiles and electronics -- the stock market soared." And then it crashed, taking most people completely by surprise and bringing on the Great Depression. Harry S. Dent agrees that the boom will not go on forever, but he sees a different dynamic at work. From Dent's point of view, the current boom is driven by the spending and wealth-building activities of the Baby Boom generation -- the Boomers. He likens this huge population to "a pig moving through a python." According to Dent, the U.S. baby boom, which began in 1945 and ran until about 1962, produced a generation four times larger than the previous generation, and three times larger than any previous "birth wave." This huge group of people is now moving out of its child-rearing years into its highest productivity, highest wealth-creating years. And the Boomers as a group will remain in that high income, high investment niche until about 2008-2009, when the first of them hit age 65. That, Dent says, will mark the peak of the U.S. boom and the beginning of an inevitable economic decline. The same baby boom dynamics are operating throughout the English-speaking world, Dent says. England, Canada, Australia and New Zealand will all do well economically in the decade ahead. Western Europe will lag a bit because its post-war baby boom started several years later and was neither as strong nor as sustained as in the U.S. But in general, economic prospects for Western Europe are quite good, Dent says, and the inevitable decline will start later there than in the U.S. and perhaps not be as severe. Japan's population dynamics are very different from those of the West. Dent points out that political and economic factors prompted a Japanese baby boom prior to the start of World War II, but the hardships and defeat in the war all but crushed any post-war boom. Not coincidentally, Dent notes, the Japanese economy boomed hugely during the 1980s, then crashed at the end of that decade and remained in the doldrums during most of the 1990s, while the West was surging. Japan is recovering now, but slowly; and its growth will be only modest in the coming decade, according to Dent. But Japan's economy could begin booming again just about the time the U.S. economy starts to turn downward. For somewhat different reasons, China's economic prospects are very strong. There, market reforms, rapid industrialization and very rapid penetration of technology into the world's largest population are all working together to make the next decade one of great promise for China. In general, economic prospects are also relatively good for Mexico and much of Latin America, and for the newly industrialized nations of the Pacific Rim, Dent and other economists believe. Lagging, at least for now, are Russia and most of Eastern Europe. What happens in Russia may depend upon the direction charted by soon-to-be president Vladimir Putin, more than anything else. Russia has all the basic ingredients to become an economic powerhouse, but widespread corruption, gross inefficiencies, and a citizenry and political leadership still deeply conflicted about adopting Western-style reforms adds up to a nation in chaos and confusion. Even so, Russia's prospects have improved substantially during the past year. India, the world's second-most populous nation, also has economic prospects, especially as it moves into high technology. But India, like much of south and central Asia and most of Africa, also faces huge challenges of poverty, resource depletion and rapid population growth. In these parts of the world, wealth will at best be very unevenly distributed, with the most fortunate few able to do very well indeed, while the great majority languish. The fact is, even the greatest economic boom in history -- perhaps a boom the likes of which will not be seen again in the coming century -- is distributing its benefits very unevenly. According to recent studies, even in the U.S. during the 1990s, the rich got richer while the poor got poorer. "What is striking is that, even after the long-sustained economic upswing of the 1990s, the United States still has the greatest inequality of wealth and income in the developed world," says Harvard University Professor Theda Skocpol, author of a new book called "The Missing Middle." A report issued in January by the Economic Policy Institute and the Center on Budget and Policy Priorities said that during the 1990s, average real income of high-income families grew by 15 percent while wages for poor and middle-class U.S. families stagnated or actually declined. At the same time, in more middle-class households than ever before, both spouses hold jobs, and work-related stress is widely perceived as undercutting the quality of life at home. Meanwhile, in just the one year between 1997 and 1998, the number of U.S. households declaring a net worth of at least one million dollars rose by 26% to a total of 6.7 million, according to Washington's VIP Forum. Clearly, the U.S. economy is better off today than it was five or ten years ago -- but many citizens are not. And that will inevitably remain the case, even as the economy continues to boom for the next eight to ten years. But what is perhaps more worrying is what happens once the boom is over. That day must come, and for the English-speaking world it will come by, or before, the year 2010. At least that is the view of Harry Dent, based mainly on Baby Boom economics. As previously noted, Japan's prospects might well be improving at about that time, while China's may be surging. Most of Europe will likely follow the U.S. curve, with possibly a lag of several years. What cannot be ignored is that the baby boom generation will produce several times more senior citizens than any previous generation in history, not only because there are far more Boomers to begin with, but because on average they will live longer than preceding generations, possibly a lot longer. Inevitably, as this huge bulge of citizens reaches retirement -- even if many put off retirement until the age of 70 or even 75 -- they will put a huge strain on existing social security and health care resources, both in the United States and elsewhere. It is estimated, as well, that Boomer senior citizens will be less able to depend upon their children for assistance than any previous generation. This is because 50 percent of all Boomers have been divorced, and recent studies show that children of divorced parents are far less likely to provide major assistance to their elderly parents than children from unbroken families. Meanwhile, that huge group of senior Boomers will gradually stop earning, and their spending will slow to a trickle as they draw down their investments -- and the engine that drove the great boom will sputter. But larger dynamics are also in play. The pressures of population growth, resource depletion and environmental degradation can -- and probably will -- be held at bay in the Western world during the next decade, but not forever. Even today, forward-thinking economists and environmentalists recognize that the West as a whole will have to pay the price of its current good fortune as well as its neglect. That price will be high, even if the best-possible economic and environmental policies were to be enacted immediately -- hardly a strong prospect. But other parts of the world will inevitably pay more, and sooner, damping whatever growth prospects they might otherwise have had. For example, drastic water shortages in India, much of the Middle East and northern Africa will exacerbate poverty and breed regional conflict. The AIDS crisis in central and southern Africa will sap that region's already meager resources. Even China, now brimming with economic promise, must face the likelihood of dire food shortages within one or two decades. In short, the emerging trends portend a coming period in which much of the world can participate in an economic boom of unprecedented scope, followed by a period of indeterminate length (Dent estimates 12 to 14 years) in which much of the world faces economic contraction and the least privileged regions face possible catastrophe. If this picture is understood and taken seriously today, it can provide a map and an incentive to make sure the years of plenty are not squandered, but instead become the means by which the world survives and even thrives through the ensuing years of decline. Neither boom nor bust lasts forever. The current boom is already the longest in modern times and will likely last another eight years or more -- an astonishing ride. The real trick will be to make sure the bust that follows will be as short and painless as possible.
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