Sociologists are worried that rich Americans are getting richer while the poor are becoming poorer.
Workers are stressed out and uncertain about the future.
Investors aren’t convinced that the bull market in stocks can last.
Even billionaire George Soros has begun wondering whether capitalism is all it’s cracked up to be. “The untrammeled . . . spread of market values into all areas of life is endangering our open and democratic society,” he asserts.
Will ordinary Americans be able to make it in the economy of the 21st century?
Well, put aside the gloom and fasten your seat belts. Many economists believe that the United States is entering a period of long-term prosperity and rising living standards that could surpass any in U.S. history--even the fondly remembered 1960s.
“For the next 20 years, we’re going to have a period of massive growth,” says W. Michael Cox, chief economist at the Federal Reserve Bank of Dallas.
During the last three decades, optimists argue, the U.S. economy encountered serious turbulence: soaring budget deficits, the 1974 Arab oil embargo, surging inflation and global competition.
In response, companies have cut costs and downsized their work forces. Congress has eased government regulation in key industries, such as banking and telecommunications. The Federal Reserve Board has restrained economic growth in the interest of fighting inflation. The federal government has cut its budget deficit significantly.
Now, the economy is reaping the rewards and is better balanced and more competitive than at any time in recent memory. The economic indicators point in the right direction: Employment is up, growth is steady and inflation is down.
And the advent of the microprocessor superchip has spawned a whole new world of computer technology that promises to enable us to work more efficiently and improve living standards for all.
Some of the recent discomfort will continue. Futurists predict that tomorrow’s workplace, like today’s, will be more uncertain than that of the 1960s. Workers without a college education--particularly high school dropouts--will find it more difficult to make good wages. Employers will be more demanding.
Economists offer a caveat: Trying to forecast what may happen 20 years from now is iffy at best. They remember only too well that the rosy future that some analysts foresaw in the early 1970s quickly turned into double-digit inflation and double-digit unemployment.
Still Vulnerable to Outside Forces
Prosperity remains vulnerable both to outside developments--such as a worldwide recession, another major oil embargo or a disruption in global trade flows--and to a renewal of the complacency that characterized the 1960s and 1970s.
Those possibilities aside, interviews with economists, demographers, business leaders and government officials suggest that these developments are in store:
* While recessions are not a thing of the past, boom-and-bust cycles will be far less wrenching in coming years--partly because computers now enable firms to maintain far better control over inventories, averting the huge buildups that once were a major cause of downturns.
* Although global competition will continue to force companies to keep their costs low, the surge in new technology--made possible by the microprocessor, which many believe will bring on a boom that is comparable to the industrial revolution of the 1800s--will spawn millions of jobs, both in the United States and abroad.
* The spurt of new technology will help boost living standards all over the world. Already in sight are light-year leaps in technology; the Internet is merely a tame example.
* Despite all of today’s apprehension, Americans will gradually adjust to the changed environment. Pressure from voters is likely to force major changes in the education system to upgrade the skills of bottom-tier students. Workers accustomed to the flux in the job picture will be far more ready to change not only employers but also careers.
As analysts have chronicled since, many of the supposed economic shortcomings that troubled Americans during the 1992 election campaign--such as a growing disparity in income distribution and a seemingly endless string of layoffs resulting from corporate downsizing--either were grossly exaggerated or have already begun to reverse themselves.
Layoff Rate Has Remained Stable
For all the recent hand-wringing about turmoil in the job market, Labor Department statistics show that the layoff rate nationally during the 1990s has been substantially the same as in previous decades. Workers are holding onto their jobs about as long as they had before. After a brief setback, Americans’ paychecks are outpacing inflation again.
While some married couples have complained that both husband and wife must work--and sometimes moonlight--just to make ends meet, economists say many of them are living better than they did a decade ago, and those at the upper end of the middle-class scale have been clear gainers. Many of the expenses of two-earner families pay for child care and other costs of having two wage earners outside the home.
Fresh figures show that the critics were wrong in contending that the millions of new jobs that the American economy has been creating during the last several years have been mostly for hamburger flippers, parking-garage attendants and the like.
A Labor Department study shows that three-quarters of the net job growth in the economy between 1989 and 1995 occurred in the managerial and professional occupations. And the Council of Economic Advisors has found that 68% of the net new jobs from 1994 through 1996 came in occupations paying above the median wage.
While workers in the bottom tier of the income spectrum suffered a relative decline in real income during the early 1990s, Lynn A. Karoly, a Rand Corp. analyst, says the causes go far beyond corporate downsizing and economic factors and are linked to social and demographic changes, such as the sharp rise in the number of single-parent families.
Karoly points out that the rise of divorce and teenage pregnancy has often left the breadwinning function with single mothers who have few job skills. Meanwhile, the income of upper-tier families has been enhanced by two-earner couples in which both partners are college graduates.
While the overall growth of Americans’ real income--wages and salaries after adjustment for inflation--has slowed markedly from the 1950s and 1960s, economists say that stems at least in part from overestimating inflation in the government’s statistics-gathering techniques. When that is corrected, they say, the growth rate appears more respectable.
What is more, the Dallas Federal Reserve Bank’s Cox points out, that income aside, living standards for most families are significantly better than in the supposedly halcyon days of the ‘60s and ‘70s.
The average size of a new home is almost 1 1/2 times that of 1977. Nearly 80% of houses are equipped with central heating and air conditioning, compared to 34% in 1970. Eighty-four percent of households have microwave ovens, up from less than 1% three decades ago.
More Time, More Money Available
And today’s American family has more time and money to enjoy it all: Despite popular complaints about longer work hours, the average work week has shrunk to 34.5 hours, from 37.1 hours in 1970. Americans are spending an average of $1,543 apiece on recreation, three times what they did in 1970.
Futurists say the microprocessor--today’s newest development in the “information revolution"--is likely to boost living standards even further by creating thousands of new products and hundreds of new industries using these super-fast, super-small computer chips.
The potential is enormous. New technology ranging from laser beams to fiber optics is already being used for a variety of tasks, from surveying and mapping huge areas to destroying tiny tumors.
Edward Yardeni, economist for Deutsche Morgan Grenfell Inc., a securities firm, predicts that the microprocessor will revolutionize retailing, education and telecommunications, integrating businesses and households as never before. Where a retailer used to open a store and wait for customers, Yardeni says, consumers soon will be able to order almost everything--even a car--through their home computers.
“We’re not talking about something that will happen far off into the future,” Yardeni says. “We’re talking about the year 2000.”
At the Dallas Fed, Cox predicts that the biggest gainers in the next 20 years will be industries such as Internet service companies, computer-related services, financial and security firms, medical providers, educational institutions, amusement and recreation facilities, nursing and personal care services and eating and drinking establishments.
Other industries will inevitably decline. Among them, Cox predicts, will be printing and publishing, textile and apparel manufacturing, railroad transportation, sawmills, metal fabricators, electric and gas utilities, farming and primary metals industries.
W. Brian Arthur, an economist at the Santa Fe Institute think tank, says computerization has put the world on the verge of a technological upheaval comparable to the one that followed the industrial revolution.
The lightning-fast development of new software is producing technologies and applications “that we couldn’t even envision 10 years ago,” Arthur contends, “redefining whole industries” and creating new ones. Virtually every industry will be affected, he says.
Disappearance of White-Collar Jobs
Just as the industrial revolution uprooted many blue-collar jobs, today’s “softwareization” will displace many white-collar workers. “All the Dilbert-type jobs--pushing paper--will be slowly eaten up,” Arthur says.
The nation has coped with such upheavals before: The revolution in agricultural technology sent farmhands streaming to urban manufacturing jobs in the 1920s, and automation later pushed factory workers into service jobs. Where will displaced white-collar workers go?
Although some analysts are confident the technology will create enough new industries and jobs to fill the vacuum, almost everyone concedes that the nation will have to do better in preparing its unskilled workers for jobs in the Information Age if it expects them to survive.
“Telling kids that if they only finish high school, they’ll be able to maintain a middle-class living is a mistake,” Karoly says.
Indeed, economists and demographers alike say job prospects for those who do not have a college education will dim significantly during the next few years as advances in technology leave fewer good job opportunities for unskilled workers. Differences in the wages and salaries of workers in the same company also are likely to widen.
What is more, without major changes in societal structure, analysts say, the income gap between the richest category of Americans and the poorest is likely to grow as salaries of more productive employees keep rising and as low-skilled workers--particularly single mothers--find it difficult to get good jobs.
Barry P. Bosworth, an economist at the Brookings Institution, a nonpartisan research organization, warns that the growing disparity “raises the fear about whether we are evolving into a dual-income society” after all. “Years ago, we used to think that everybody had a chance to be a winner, but that’s not true anymore,” he says. “Now, if you’re at the bottom of the distribution to start with, you’re likely to stay there.”
At the same time, however, Deutsche Morgan Grenfell’s Yardeni suggests that computerization may prove to be a great leveler, with some computers so user-friendly that even relatively unskilled workers can operate them easily, much as they now run pictograph-style cash registers in fast-food restaurants. “You don’t have to go to college to be a Webmaster,” he says.
Carol DeVita, an Urban Institute analyst, says the combination of technological breakthroughs, increased competition and social changes has already eliminated the long-standing assumption that working for a large corporation would all but guarantee a person lifetime employment.
Instead, young people today “can expect to make 10 or 12 job changes over their working lives--and possibly two or three career changes as well,” DeVita says. “The most certain thing we can count on is uncertainty.”
Analysts say today’s new workers will also no longer be able to assume that their initial training or education--even a college degree--will stand them in good stead for their entire working lives.
That in turn will require “a more agile, more flexible work force,” with special provisions for those who want to work less than a full work week, says Arthur of the Santa Fe Institute.
Kenneth P. Voytek, an analyst at the National Alliance of Business, says the job market is already requiring that workers continually upgrade their skills. “It’s going to be a critical issue,” he says.
While that may be disconcerting to some older workers, Peter A. Morrison, a Rand Corp. demographer, says young people entering the job market are not as worried. “Their generation has a different set of expectations,” he says. “For them, uncertainty is the norm. They see no basis for worrying.”
Fear of Developing Worker Underclass
Still, Morrison fears that unless the education system changes rapidly, the unskilled portion of the work force will be left behind. “Every indication we have is that the people who do not have some college will be marginalized,” he says. “There is a real risk that we are slowly in the process of developing an underclass of uneducated workers.”
Another wild card in the economic outlook is the impact of the baby-boom generation, which will begin reaching the traditional retirement age in 2011. “It’s probably the single most important phenomenon facing us that we know about,” says Marvin Kosters, an economist at the American Enterprise Institute think tank.
Demographers warn of the potential strain on workers who are paying into the Social Security and Medicare systems. But analysts are sharply divided over what the boomers are likely to do.
Today’s retirees--particularly men--are typically leaving the work force at 62 rather than 65. Will the boomers do the same, or will they remain at their full-time jobs until they are 68 or into their mid-70s? And what will they do when they retire? Work at part-time jobs? Travel?
Labor Department analysts say the baby boomers are already beginning to save and invest more than their elders did, a factor that has led to an increase in available investment capital and has helped buoy stock prices. It still is unclear, however, whether they are saving enough to finance the kind of retirement they want.
Apart from the demographic question, economists say there is very little else in sight that might threaten the prosperity so many now see coming. In sharp contrast to the situation 20 years ago, America’s two major competitors, Europe and Japan, are mired in economic problems, with no quick solutions apparent. China is still some years from becoming a major economic competitor. And no one else has the technological base.
Jeffrey E. Garten, a former government trade official and now dean of the Yale School of Management, warns that the U.S. economy remains vulnerable to what he calls the 10 “big emerging markets,” including China, Brazil, India and Argentina. These countries are already competing with the United States for global export markets and, as major importers of U.S. goods, they could deal a blow to U.S. exporters if their own economies collapsed.
“The current environment is much more fragile than it appears,” Garten writes in “The Big Ten,” a newly published book. While the pace of the U.S. economy exceeds that of Europe and Japan, he says, “the fact remains that we are expanding at the slowest rate in many decades, and much of our growth is tied to exports, which themselves depend on continued economic progress in big emerging markets.”
If anything, economists are now in a debate over whether the nation, under current economic conditions, can grow faster without rekindling inflation. Many believe that because of flaws in today’s measuring systems, the inflation rate is actually substantially lower than statistics are showing--and productivity significantly enough higher to allow faster growth.
If they prove correct, and the government allows the economy to grow more rapidly in the years ahead, the outlook could prove to be even brighter--for those who have the skills and training to reap the financial rewards.
“I’ve got a pair of rose-colored glasses on now, and I didn’t have them eight or nine years ago,” says Allen Sinai, chief economist at Primark Decision Economics Inc. of Boston. “The U.S. has gone through a tremendous turnaround. What is coming could be perhaps the best performance in our history.”
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
HOT TECHNOLOGIES / The Future is Now
Ten of the new technologies made possible by the microprocessor, and some of the ways they will boost living standards:
TECHNOLOGY: Lasers. Amplifying light through emission of radiation.
WHAT IT CAN DO: Measure velocity and distance. Survey and map. Clean surfaces. Cut metal, wood, diamonds. Remove wrinkles in skin. Destroy tumors. Perform surgery. Read bar-codes, CDs.
TECHNOLOGY: Virtual reality. Simulating human experiences.
WHAT IT CAN DO: Animate roller-coaster rides, hang-gliding. Tour museums. Explore caves, oceans, other planets. Perform remote surgery. Train pilots, drivers, firefighters, surgeons.
TECHNOLOGY: Genomics. Studying genes and their place in the DNA structure.
WHAT IT CAN DO: Repair or reverse genetic defects, mutations. Create vaccines. Improve diagnoses. Engineer cancer-killing proteins. Clone life forms. Slow the aging process.
TECHNOLOGY: Integration technology. Linking cable, satellites, radio, TV.
WHAT IT CAN DO: See whom you’re talking to. Identify and cull incoming calls. Monitor asthma via modem. Shop, bank, order movies, vote. Control equipment, send digitized images from afar. Meet potential dates.
TECHNOLOGY: Biotechnology. Applying knowledge of natural biology.
WHAT IT CAN DO: Engineer tastier and more nutritious foods and disease- and insect-resistant plants. Clean up waste and pollutants. Create skin tissue, cartilage, heart valves, blood, hair follicles. Grow human organs in animals.
TECHNOLOGY: Smart products. Using microprocessors to control machines and sensors.
WHAT IT CAN DO: Make refrigerators that track household food inventory, beds and toilets that monitor health, skis that bend and stiffen as needed, driverless cars that never have collisions.
TECHNOLOGY: Nanotechnology: Manipulating matter at an atomic level.
WHAT IT CAN DO: Make superconductors. Create flawless diamonds, more powerful lenses, biological sensors. Make machines the size of microbes to break down toxic waste, kill pests, attack viruses.
TECHNOLOGY: Bionics. Merging biological, mechanical systems.
WHAT IT CAN DO: Develop implants to help the deaf hear and the blind see. Pump drugs to diabetics. Pace or defibrillate hearts. Restore neural sensation. Improve prostheses.
TECHNOLOGY: Global positioning. Using satellites to pinpoint positions.
WHAT IT CAN DO: Navigate aircraft, ships, missiles and automobiles. Coordinate taxi pickup and delivery. Till soil, bulldoze ground inch by inch. Pinpoint cars, missing children, pets.
TECHNOLOGY: Micromachines. Manufacturing tiny gears, motors, etc.
WHAT IT CAN DO: Probe the body. Clean arteries. Locate tumors. Measure the strength of a single heart muscle. Make smaller, faster microchips.
Compiled by W. Michael Cox, chief economist, Federal Reserve Bank of Dallas, and Richard Alm
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
The top 10 inventions and discoveries that have changed the way we live:
1. Electricity: 1873
2. Microprocessor: 1971
3. Computer: 1946
4. DNA: 1953
5. Telephone: 1876
6. Automobile: 1886
7. Internet: 1991*
8. Television: 1926
9. Refrigeration: 1913
10. Airplane: 1903
* Microprocessor: The electronic brain of a personal computer. It consists of silicon wafers etched with circuits. Electrons flowing through these circuits perform the mathematical processes that are at the heart of digital computing.