The Economy in 1994

January 03, 1994

With the arrival of a new year, the American economy seems to be on a solid projectory from a technical recovery to a real one marked by consumer and business confidence. The consensus is that gross domestic product will grow somewhat more than 3 percent while inflation stays low and unemployment actually dips below the 6 percent mark. Shadows on the horizon are across the seas, in Japan and Europe, where a dismal outlook means less demand for U.S. exports and an increasing trade deficit for this country.

As President Clinton so often insists, we should look at the fundamentals to see where all this is leading. The long years of recession and jobless recovery have vastly improved the productivity and competitiveness of American industry. Measured by unit labor costs, the U.S. and Japan have switched places since the mid-80s. Now Americans are more efficient and are turning in numbers most other industrialized nations -- Germany for one -- must envy. We have gone through the pain of a needed shakeout years before our competitors.

Before this breeds complacency, however, we must look at longer-range fundamentals. Americans lag far behind Japan and Germany in average education achievement. Crime and personal insecurity undercut the quality of life. While most citizens are remarkably hard-working and fairly well off, a significant minority is neither motivated nor enticed to be part of the American dream.

This is not only a social drag, but an economic handicap in a world where high tech is king. It is also a flaw that the country, to its credit, seems determined not to ignore. Improving school systems has become a national obsession; crime now outranks jobs as the No. 1 concern in opinion polls. Entrenched in Washington, for at least three more years, is an activist administration headed by a president who sees economic performance as a joint product of both domestic and foreign policy.

In 1993 Mr. Clinton's top achievements reflected this approach. He squeezed a five year, $500 billion deficit reduction bill through Congress. He overcame a rebellion by fellow Democrats to win passage of the North American Free Trade Agreement. And he convinced other nations it was now or never for reform of the world trading system because of his determination to focus in 1994 on domestic health care reforms.

Financial markets have reacted benignly to these priorities, perhaps because they see in them an attempt to coordinate private and public sector imperatives, both national and worldwide. But the verdict is still out. Just as the 1993 economy softened at mid-year, so could the 1994 economy.

Right now the signs are more favorable for the economy than they have been for a long, long time. But prosperity is far from a sure thing. Nations and individuals will have to run their affairs carefully to make 1994 a happier year.

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