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The following editorial appeared in today's Providence Journal:
President-elect Bush's meeting with Federal Reserve Chairman Alan Greenspan is a measure of the Fed chairman's importance in Washington. Mr. Bush is anxious not just to express his "confidence" in Mr. Greenspan, as he said, but to send an implicit message as well: As business shifts into lower gear, Mr. Bush wants to make sure that Mr. Greenspan will help keep things from getting out of hand.
For make no mistake: The economy is slowing down perhaps faster than anyone anticipated. The NASDAQ has lost nearly half its value in a year, the Big Three automobile companies are hurting, consumer confidence is down, unemployment is edging up, and the annual growth rate in the gross domestic product has been cut in half. Perhaps most ominous is the fact that retail sales for the holiday season have been disappointing, and some big companies have announced layoffs.
This does not necessarily mean that America is rushing headlong into recession, or that "Clinton-Gore prosperity" will soon be a misnomer. But it emphasizes an age-old lesson of the market: Economies heat up, economies cool down, and, along with death and taxes, the business cycle is inevitable. We have been especially fortunate during the past two decades. Since Ronald Reagan's first term, the United States has endured only one minor (except in the Northeast and California) recession (1990-91), and the U.S. economy has proved more energetic, adaptable, creative and resilient than those of the European Union or Japan Inc.
But the U.S. economy has not rewritten the laws of economics. The great boom of the '90s did not really hit its stride until the middle of the decade, and e-business, while formidable, has not turned the world upside down. Last year, certain neighborhoods almost seemed to be filling up with 25-year-old high-tech billionaires. Now a day hardly passes without another sobering story of an overvalued, undercapitalized Internet enterprise going bust.
Whether we are destined to endure a slump, or escape with a soft landing, depends to some extent on Alan Greenspan and George W. Bush. Mr. Greenspan has fine-tuned monetary policy with exceptional skill in recent years, and Mr. Bush has declared that the slowing economy merely emphasizes the wisdom of tax cuts for consumers. We take issue with the size of his proposed tax-break package, but not with the assertion that tax cuts may well be needed soon to avert recession, or help get us out of one quickly.
If the two men work in harmony, the cooling economy may avoid a deep freeze. But there's no mistaking the reality of the business cycle.