Stern and Aliber agreed the Federal Reserve had oversupplied money.
"The Fed has used up most of its silver bullets," Aliber
observed. Stern agreed. "Alan Greenspan panicked," Stern
said.
When it came to the likely growth of the nominal gross domestic
product, Aliber foresaw only a small increase of 0.3 percent,
while Stern optimistically predicted a hike of 3.7 percent. Aliber
noted wryly, "Once again, my forecast is not as upbeat as
the consensus forecast. The nominal growth rate differs from the
consensus forecast in only one small way—the decimal point
is to the left rather than to the right of the 2.
"But because the inflation forecast is 1.4 percent for
the year, the real rate of economic growth—which will be
driven by the collapse of profits and investment spending—will
be minus 1.2 percent for the year 2002. The trough for economic
activity will be in the third quarter, with an anemic increase
in the fourth quarter. The unemployment rate will average 6.6
percent for the year, and at year-end the rate will be 7.4 percent,"
Aliber said.
Stern countered, "For the year 2002, the economy will bottom
in February, March, or April and then it will head steadily upward.
I estimate real GDP growth of 1.7 percent, the implicit price
deflator (up) 2 percent, real business spending plus 0.3 percent,
consumer spending up 1.7 percent, and government spending up 4.5
percent."
Both Stern and Aliber, however, were closer in their predictions
of how the unemployment rate would fare, with Stern estimating
an average level of 5.9 percent to Aliber’s 6.6 percent.
But, Stern cautioned, "Unemployment is a lagging indicator,
rising even after the recession is over because businesses wait
until there is considerable evidence that a recovery is under
way before hiring again."
Recovery must have an international component, advised Marvin
Zonis, professor of business admin-istration. "Last year,
I said before this audience, ‘Many emerging economies and
the rich countries are hurtling ahead while even a greater number
of emerging countries will fail to emerge. Failure to address
the divide will result in increased poverty for the failing countries,
increased global instability, disease, population movements, and
conflict.’
"I did not imagine that my forecast of conflict would mean
conflict in 2001, nor did I think that ‘conflict’ would
mean hijacked airliners destroying buildings and causing thousands
of deaths on American soil," he said.
"In those deeds can be found the possibilities of a global
recrystallization—a hinge moment—where the global order
can be restructured to the benefit of the United States and the
benefit of billions of other people."
One of the biggest challenges would be the establishment of
a centralized government in Afghanistan, a nation with a "Hatfield
and McCoy militia mentality," Zonis said. Although the U.S.
is unlikely to help, he noted, American military efforts wiped
out the training ground for terrorists.
Still, Zonis predicted violence would strike an American business
on foreign soil. "Watch for one significant attack outside
the U.S. in 2002," he said.—P.B.
