December. It’s the month when all the forecasters come forth to issue pronouncements for next year’s interest rates, rates of inflation and growth in gross national product.
But with so many wild cards in the deck, will these forecasts make much sense? I don’t think so.
The accuracy of today’s forecasts depend primarily on events outside the forecasting models. Will there be war in the Mideast? Will defense cuts be steep or gradual, and how will they be distributed geographically?
Will bank regulators exacerbate the credit crunch and deepen the economic slowdown? Will members of Congress control their insatiable appetite to spend the wealth of our children and grandchildren?
These issues of war and peace and congressional profligacy are important questions we should be thinking about as we consider prospects for the economy in 1991 and beyond.
It is important to consider the fundamental forces driving economic activity – in the United States and in the global economy. I think these are forces for growth and expansion, not decline and contraction.
They are what I call the TIDE of the 1990s: T for technology, I for international commerce, D for demography and E for entrepreneurship.
Just as the 1980s were driven by applications of the microchip, computers and other advanced technologies, the 1990s will be driven by a second revolution in the computer industry. We also are looking at whole new industries based on biotechnology and new technologies of transportation and telecommunications – including hypersonic aircraft and many new “smart” systems: cars, highways and homes. And there will be growing demand for new environmental technologies.
The most rapidly growing markets will be international ones. Consider Colorado, where annual exports have risen to $3.2 billion, including a 67% increase in exports to Japan and 35% increase in exports to Europe since 1987. EC ’92, the emerging North American Free Trade Area – including the United States, Mexico and Canada – and the 12-nation Asia-Pacific Economic Cooperation process are each important institutional manifestations of the boom in international commerce.
Consider demography, where aging boomers – 78 million Americans between the ages 26 and 44 – are leaving their low wage-earning, high-consumption years – when they buy their first home, first car and first TV – to enter their high wage-earning years. As a result, we can expect significant increases in savings during the next five to seven years, perhaps as high as 8% to 10% by 1996. These savings will fuel economic expansion at home and overseas.
Finally, there’s entrepreneurship, the basis of the enterprise economy. Entrepreneurs in small businesses are creating nearly 2 million net new jobs a year. By a ratio of 2-1, these jobs are in the higher wage-earning business and professional services area, rather than general services, and nearly 20% are in manufacturing.
These are the tidal forces that will drive economic activity in the 1990s. This is no time to get lost in short-term distress.