1996: The economic outlook Steady as we go: Greenspan recovery on track as free-wheeling capitalism prevails.

January 08, 1996

AN EERIE OPTIMISM prevails in corporate boardrooms and financial markets as 1996 begins. Despite the government shutdown, despite huge layoffs and stagnant take-home income, despite bear growls on Wall Street -- there is a consensus that "the Alan Greenspan recovery" will continue chugging into its fifth year. The chairman of the Federal Reserve Board may be a nominal Republican, but if President Clinton is re-elected he will have Mr. Greenspan to thank.

Don't talk upbeat to Marylanders, of course. The regional economy remains in the doldrums, the victim of federal and defense downsizing and worsening urban blight. While some states are prospering, soft spots are to be found -- and Maryland, unfortunately, is one of them.

Yet if one trend predominates, it is a rising tide that makes this nation the most competitive on Earth. Our private sector is larger, our tax burden is smaller, our entrepreneurial energy is released more freely than in any other major industrial country. The social welfare state still has strong advocates and a powerful moral message, but it is losing ground in the global economy as America leads the way.

As the year begins, most economists foresee steady if moderate growth of about 2.5 percent, inflation under 3 percent, unemployment down around 5 percent, job creation bubbling and interest rates falling further. It is a picture, in aggregate, that is the stuff of Greenspan dreams. His game is to moderate the recovery in order to prolong it, and so far he has succeeded.

In peering into the mists of the economic future, it is unwise to ignore the naysayers. While most Wall Street gurus predict the Dow Jones average, now at a record 5100-plus, will end the year in the 5500-to-6000 range, some analysts foresee a sharp downturn -- perhaps as early as this month. Others point to high middle-class indebtedness as a harbinger of slack sales across the board. Worries about job security and job downgrading add to a pessimistic mood in the public at large.

If there is a common thread in the economic outlook, it is one of high risk. Revolutionary Republicans in Washington are gung-ho to cut taxes, loosen regulatory standards and reduce the size of the government bureaucracy. In industry, some of the largest, once-staid corporations are reinventing themselves and slicing away at their own management bureaucracy. The result: lots of big winners and big losers, with the wealth-poverty ratio widening to what some observers consider a danger point.

This, then, is 1996, a year when Americans will be more on their own to make it rich or scratch it out poor. There may be social blemishes a-plenty in such a system, but not yet of a magnitude to contest the trend toward a freer-wheeling capitalism.

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