The Bush Bust?

CAMBRIDGE: America’s long boom is at risk. Signs abound of an impending slowdown, even of recession. These dark clouds are gathering as transition from the Clinton to Bush Administrations gets belatedly underway.

The quality of economic management in the new Administration’s first year will set the course for many years to come. When President-elect Bush talks about using huge tax cuts to keep the economy humming, it is time to start worrying. Large tax cuts are a short-term “solution” that could do serious long-term damage.

Rapid growth and huge increases in stock market wealth are nowadays almost taken as a matter of fundamental right by many Americans. They can’t imagine the US economy slowing, or share prices falling and staying down. They have read too many phony analyses of the New Economy promising unbounded riches and full employment forever.

The problem with these New Economy prophecies is that a bit of truth is mixed with huge exaggerations. Yes, the New Economy is delivering big increases in US productivity; no, the New Economy has not ended economic slowdowns or recessions. Still, less does it guarantee that companies should have stock market prices set at several hundred times their annual earnings.