The Economy: New & Exuberant

(9 of 10)

This is only one of the tests facing the new economy. Some of the more cautious worry that the stock market is becoming overpriced again, after one of the sharpest rises in its history; they believe, as J. P. Morgan put it, that the market "is destined to fluctuate." Others wonder how much the demand for steel will decline should the possibility of a strike evaporate, how long customers will continue to spend so freely, and how well the 1964 cars will go over. And bankers fret about how long the dollar can maintain its integrity in world markets with the nation's balance-of-payments deficit running at a rate of $3.3 billion so far this year.

U.S. businessmen, while recognizing all these potential potholes, are remarkably confident. Joseph Block and other steelmen expect their industry to produce some 105 million tons this year, up 7% from 1962. F. W. Dodge Corp., the Boswell of the construction industry, says that construction will be up 4% for the year. Insuranceman Fitzhugh, whose Met ropolitan Life lends almost $1 billion a year to corporations, reports that requests for capital loans have increased notably in recent months. Retailer Lazarus is planning to open more than 40 new stores over the next decade, adding to the 58 he already bosses. And in Detroit, G.M.'s Gordon says: "We could be looking at a situation not long from now when 8,000,-ooo or 9,000,000 car sales a year will be normal."

The Golden Mean. Perhaps the most interesting development in the new economy is that businessmen have become disillusioned with the prospect of an old-time flash boom, whose excesses have inevitably led to a slump. Businessmen now feel that a boom, like pride, sows the seeds of its own destruction; they would rather have steady, solid growth. Says Metropolitan's Fitzhugh: "It would be healthier for us if we didn't have a boom."

There are signs everywhere that the business cycle is entering a new phase—a phase of the golden mean. Government spending has exerted a steadying influence on the economy. Companies are better managed and better prepared, wisely make many decisions not for the short but for the long term. The computer population has grown from 300 to 11,000 in eight years, and is forecasting demand faster and more accurately, making sharp swings in inventory unnecessary. As a result, recessions are becoming briefer, shallower and less frequent, and periods of prosperity are lengthening. In the 85 years before World War II, the average slump lasted 21 months; since then it has shrunk to ten months, while the length of the typical peacetime recovery has increased from 25 months to 32 months. Perhaps the recoveries are more moderate, but businessmen are coming to believe what Seneca said 20 centuries ago: "Moderate things endure."