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Bearish Views on the 'Goldilocks Economy'

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That soft hum coming from the computer on your desk is, to many economists, the sound of wealth in the making, for virtually every American.

It's the sound of the "New Era" for the American economy, inspired by technology, powered by quantum leaps in productivity.

But not every expert hums the same tune on America's new economy. Problem is, they say, there are no national data underpinning this brave new world.

Advocates of the New Era make a compelling argument. They see a second Industrial Revolution, with steady growth, low inflation, plentiful jobs, and strong productivity.

The notion of a New Era even won qualified support from Federal Reserve Board Chairman Alan Greenspan. It has apparently contributed to the Fed's decision to keep interest rates low since March.

Champions of the new age hatched their idea to account for the dazzling US economy. If the current six-and-a-half-year expansion lasts until the new year, it will mark the nation's longest period of peacetime growth.

Unemployment, at 4.9 percent, is near a quarter-century low, crashing several months ago through a level widely considered a trigger for inflation. Inflation remains weak at a 2.2 percent annual rate.

New Era adherents point to intensified trade curbing inflation (see related story, Page 1). The dismantling of trade barriers this decade has compelled US companies to hold down prices to compete with overseas rivals.

Holy War for economists

"The New Era is the stuff of a great novel, but it bears no relationship to the reality of the 1990s," says Stephen Roach, chief economist at Morgan Stanley in New York. "Anyone who says we are entering a new era - regardless of all their passion, conviction... - is just speaking futuristic fantasy," he says.

He and other critics see it as a passing phenomenon.


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