2004: An Economic Odyssey

Most telescope enthusiasts know the difference between a clear sky and good seeing. After rain or wind, for instance, the air looks crystalline and the stars as bright as can be. Yet, it's often at just those moments that the atmosphere is secretly bubbling with turbulence, smearing what should be magnificent images of Saturn or Jupiter into an eyepiece of flickering, ghastly mush.

It seems uncommonly hard to decide this year whether our vision of the economy is blessed with confident clarity or distorted by quiet illusion. To be sure, most observers think it a safe bet that the future is bright. Combine a president determined to avoid his father's economic mistakes, an election year, rising military expenditures, a recovering stockmarket, record low interest rates, low inflation and remarkable levels of public spending and it's a sure thing the economy will be roaring throughout 2004. Even the risk of a new terrorist attack or a setback in Iraq hardly dampens such enthusiasm.

Maybe we are poised on the cusp of yet another period of effortless affluence. Then again, the same experts that are so confident now were equally certain just a few years back that the last, late boom would extend forever. Could today's apparent clarity be less than it appears?

Over the past few quarters, for example, we've been bombarded with truly amazing economic output and productivity reports suggesting American growth is reaching unbelievably high levels. Yet, one reason for these results may be that U.S. government statisticians gross up whatever sales are reported for "high tech products, like computers, by a quality factor that supposedly identifies their "true" value.

Computer sales might actually total around $900 million, as they did in the second quarter of 2003. By assuming that the quality of the computers -- their speed or memory for instance -- is much greater than in previous years, the official data expanded the quarter's results to nearly $16 billion. Worse still, the imported parts that are used to make the computers aren't grossed up by a quality factor, an oversight that can further distort the accounting of what's actually made in our country, and what's produced somewhere else.

Needless to say, this sort of statistical wizardry can greatly exaggerate real output and productivity. It also helps explain how the U.S. can be enjoying such an apparently extraordinary expansion yet generate so few new jobs. But far too few observers seem willing to seriously discuss such questions.

Indeed, the obvious is being ignored on many fronts. It is unlikely that the United States has ever enjoyed a time of more sustained stimulus. Combined state, federal and foreign trade deficits are pumping a trillion dollars per year into the economy that would otherwise be unavailable if we were living within our means. The cost of money may be at a 200-year peacetime low.

Problem is, there's scant evidence that this largess is being used to foster the creativity and innovation we normally associate with long-term prosperity. America has imported astounding amounts of goods and decimated its domestic manufacturing sector. Trillions of dollars have been recycled by refinancing tax-advantaged home loans over and over again. The U.S. buys the largest, least efficient cars in the world and burns more fuel than anywhere else. And everyone throws money at stocks. Typical of the trend, automotive giant General Motors recently floated a $17 billion bond not to pay for new factories or novel designs, but rather to buy other firms' stocks and speculate on the market.

Bad as it proved to be, at least the "new economy" offered a plausible myth in the way that the Internet was supposed to revolutionize everything. In contrast, today's supposedly red-hot growth seems to fueled by nothing more than naked subsidies and the consumption windfall they've provoked. By some measures, in fact, the majority of the recent expansion is simply government spending recounted as "growth."

Reputable economists, of course, have answers for all of these concerns. Most remain decidedly upbeat. And perhaps we should take comfort in the consensus position, even if its track record of late is hardly inspiring.

This summer, America's ambitious Cassini spacecraft will finally arrive at Saturn. Current plans call for flying the tiny probe through the outer portion of the planet's spectacular rings. "Ring modelers tell us this should be safe," explains a mission specialist in this month's Astronomy magazine. "We hope they're right."

As America embarks on one of the most curious, conflicted recoveries in memory, we can also extend such sentiments to those who would pilot our economy and nation to renewed prosperity.