Newspaper article THE JOURNAL RECORD

It's a Battle between the Old and New Economies

Newspaper article THE JOURNAL RECORD

It's a Battle between the Old and New Economies

Article excerpt

What this marketplace needs, the Federal Reserve seems to have reasoned, is a good dose of fear. Fear dissolves dreams. It brings back reality. It gets the economy back in balance.

Assumed in this theory is that things are unbalanced, and indeed there is lots of evidence: Investors buying into companies likely to evaporate within five years, consumers running up debts faster than incomes, lotteries and casinos replacing old-line businesses in local tax bases.

So much doesn't much sense, at least based on theories that people have believed in for their entire lives. Where, for example, is inflation in all this overborrowing and overspending?

Led by old-school economists, search parties have been looking for it every day during the past four years. They haven't found it, but they say it just has to be there. No ifs or buts about it.

Why? Because we have extraordinarily low unemployment, only 4 percent in January. And everyone knows that when you scrape the bottom you have to raise wages and probably hire less productive workers.

That's been true in the past, but in this economy wages haven't been rising that much. And except for a few areas, including health care, energy and housing, prices haven't been rising a whole lot.

But it's there, they say, and the way to bring it out of hiding and saving this economy is to create fear. Fear is a wonderful antidote to misbehavior; nobody wants to have things falling in on them.

But today there is a counterbalance to fear, and it's called productivity. How can people be fearful about the future when they witness the marvels of the technological age, and then are told by those who claim to know that it's only a preview of what's coming?

After the element of fear has been built relentlessly into the public consciousness, there is some evidence that overspending and overborrowing might be ebbing. And stocks have taken a nosedive.

This has created a new problem. Among investors most traumatized are those inclined to invest only in the fairest of blue chips, whose share prices already were in a deep correction. …

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