TIME Board of Economists: Gridlock (And Greenspan)

Could the closest and most bitterly divisive election in modern American history prove to be a boon to the U.S. economy? Absolutely, say members of TIME's Board of Economists, who gathered in Washington to assess the outlook after the murkiest presidential election in a century. With neither George W. Bush nor Al Gore commanding a clear mandate and the U.S. Senate virtually split down the middle, TIME's experts saw little risk of any broad and possibly destabilizing shifts in economic policy next year--regardless of who becomes the 43rd President.

The panelists agreed that gridlock would consign such bold but risky plans as Bush's proposed $1.3 trillion tax cut to the campaign-promise trash heap. "There won't be any huge tax cuts or entitlement programs, whoever becomes President," says Bruce Steinberg, chief economist for Merrill Lynch. "That means the budget surpluses should remain extremely large, and the national debt will continue to be paid down--all of which is friendly to financial markets."

With the next President almost certain to be hedged in, the most powerful economic leader in Washington next year will be Federal Reserve Chairman Alan Greenspan. The six straight interest-rate hikes he engineered from June 1999 to May 2000 have guided the economy into its present "soft landing." Those rate increases, designed to keep the expansion from overheating, slowed growth from a blistering 5.6% in the second quarter of this year to just 2.4% in the third. And if the economy should falter next year, the Fed could decide to lower rates again. Says Martin Baily, chairman of the President's Council of Economic Advisers: "Everyone believes Greenspan and his colleagues should continue to do the superb job they have been doing."

Today, with the rate hikes behind us, the TIME board forecasts a sunny 3%-to-4% expansion rate in 2001, together with an easing of inflation from some 3.3% this year to under 3%. And while unemployment may creep above 4% as the economy decelerates, jobs should remain plentiful. Says Martin Regalia, chief economist for the U.S. Chamber of Commerce: "The biggest concern of businesses from high tech to trucking is, 'Where will we get the workers to keep growing?'"

In other words, despite the palpable slowdown, the consensus of the Time economists was that the lengthiest business expansion in U.S. history will continue in 2001. Says Baily: "I don't see any reason for it to run out of steam if the policy environment is right."