The Fears Under Our Prosperity

Robert J. Samuelson has an interesting editorial today on the growth of individual instability amid rising collective stability:

A puzzle of our time is why the economy has become increasingly stable while individual industries have become increasingly unstable. The continuing turmoil at General Motors and Ford simply reflects this more pervasive industrial instability — also in airlines, telecommunications, pharmaceuticals and the mass media, among others. Hardly a week passes without layoffs from some major company, which is “downsizing,” “restructuring” or “outsourcing.” And yet, the broader economy has undeniably become more stable. Since the early 1980s, we’ve had only two recessions, lasting a combined year and four months and involving peak unemployment of 7.8 percent. By contrast, from 1969 to 1982, we had four recessions lasting altogether about four years and having unemployment as high as 10.8 percent.
A cottage industry of economists is cranking out studies on these questions. One intriguing theory — completely counterintuitive — is that the greater overall stability stems in part from the increased instability of individual industries. You would, of course, expect the opposite: As individual industries became less stable, so would the larger economy.
But the reality may be more complex. Different industries may go through cycles that are disconnected from each other, argue economists Diego Comin and Thomas Philippon of New York University. All don’t rise and fall simultaneously. To simplify slightly: Housing, autos and farming might strengthen, while computers, airlines and chemicals weaken.
Assuming there’s something to this theory — which seems a good bet — it helps explain the riddle of why there’s so much anxiety amid so much prosperity. As Americans stock up on BlackBerrys and flat-panel TVs, it’s hard to deny the affluence. But people also look to their employers for a sense of confidence about the future — and here doubts have multiplied, because more companies and industries seem assailed by menacing forces.

Posted by on February 16th, 2006 at 2:12 pm


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