BOARD OF ECONOMISTS: THE BEST UPTURN EVER

Can Americans really be enjoying a Golden Age of prosperity? It gets harder to doubt it every day. Certainly the panel of six leading economists recently assembled by TIME agrees that all signs are pointing to the kind of good times that have traditionally come along only once every few decades. The marathon expansion that has created nearly 14 million new jobs since 1991 is already the country’s third longest on record–and still appears to have legs. With no end in sight, the current recovery could claim the No. 1 spot by the turn of the century. “This is perhaps the best U.S. upturn ever, with superb performance statistics and no obvious excesses anywhere,” says Allen Sinai, chief global economist for Primark Decision Economics.

What makes today’s economy one for the books, TIME’s panelists say, is its rare combination of tireless growth and stable prices. The 1960s and ’80s went from boom to bust when the Federal Reserve jacked up interest rates to keep prices from getting out of hand. But these days, inflation is barely on the radar screen, even though the unemployment rate has fallen to 4.9%, a level not seen since Richard Nixon was President. That astonishes Princeton economist Alan Blinder, a former Fed vice chairman. If he had bet on such results four years ago, Blinder notes, “I could have got odds of 10,000 to 1 [against them]. That’s how unexpected this expansion has been.”

Unexpected, yes, but not inexplicable. Sinai, along with Edward Yardeni, chief economist for the investment firm Deutsche Morgan Grenfell (North America), argues that today’s economy can speed along briskly without inflation because of fundamental changes that have made companies more efficient than ever. Among them: the demise of the cold war, which has lifted trade barriers and released millions of workers and billions of dollars for productive peacetime purposes; and the ubiquitous use of computers, which enables companies to book new orders or build new cars with the click of a mouse. Says Yardeni: “I’m a big believer that this high-tech revolution is a major contributor to productivity growth.”

But the spread of microchips and other technical marvels is just one of the ways in which U.S. industry has become supercharged in the ’90s. The restructuring that tormented America’s companies–and especially its workers–in the early part of the decade has made firms brutally competitive. And the deregulation that began with airlines and trucking in the 1970s and ’80s is bringing price pressure to bear on such once cozy fields as utilities and telecommunications. Says Stephen Roach, Morgan Stanley’s chief economist: “Deregulation is a critical dynamic in spreading the forces of competition.”

Even a golden economy needs a little help from its friends, though, and the economists give high marks to Federal Reserve Chairman Alan Greenspan for tightening credit in 1994, before the recovery overheated. Since then, the real gross domestic product has expanded at a sustainable average rate of 2.6% a year, while inflation has been running at less than 3%.

Of course, today’s economy, however gleaming, is far from perfect. Blinder and Roach note that companies have been relentlessly squeezing more work from their employees and pocketing most of the results in the form of higher profits. Says Roach: “I think the ’90s are notable for making a few people very rich and making most people feel that their real incomes are relatively stagnant.” Adds Blinder: “American workers are not going to run for their pitchforks…but the widening of income disparities is a festering social sore.” Even employees with good jobs no longer feel secure, because downsizing remains in force throughout the workplace.

The weak growth of income provides little incentive for Americans to raise their rate of saving, which at about 5% has been well below the level found in the country’s major trading partners. That could make it more costly for companies to raise funds for the investments needed to keep the expansion going. “The Achilles’ heel of this recovery is our low savings rate,” warns J. Antonio Villamil, president of the Washington Economics Group consulting firm in Coral Gables, Fla. He foresees a painful squeeze on interest rates if foreign investors pull their money out of U.S. securities to finance the recoveries now under way in Europe and Japan.

Other panelists question whether the U.S. economy has really changed in ways that sharply reduce the risk of inflation. Blinder observes that U.S. productivity has grown a puny 1% a year for almost a quarter-century, and he cites a colleague’s remark that “the computer is everywhere except in the productivity statistics.” Such points are crucial because the recovery requires healthy gains in productivity–which measures the hourly output of workers–if it is to roll along smartly without driving up prices. Says Harvard economist Martin Feldstein, who chaired Ronald Reagan’s Council of Economic Advisers: “There is a danger that we have lulled ourselves into thinking we can operate with 4.9% or even lower unemployment without its showing up in higher inflation.”

Not to worry, says Yardeni, whose views are echoed by Sinai. Productivity data are notoriously unreliable, he argues, and the impact of the computer revolution has proved hard to measure. Says Yardeni: “Our high-tech economy has evolved into something that the statisticians can’t keep up with.” That’s particularly true in service industries such as banking, retailing and health care, where the bean counters have plenty of trouble gauging output. By conventional measures, the productivity of health-care workers has been declining, Yardeni points out, even though clampdowns on medical costs have made everyone from nurses to hospital administrators toil harder. “There are some crazy things going on here in the way we measure the economy,” he says.

Even the measurement of factory output, once relatively simple, has become fiendishly difficult as economists try to put improvements in quality into their calculations. “In the good old days it was tons of steel and yards of cloth,” Feldstein says. “Now quality is everything.” Consider, for example, improvements in computers. Though they are becoming more powerful number crunchers every year, economists have no sure way of measuring such advances when totting up the hourly output of computer companies.

Regardless of how productivity is reckoned, TIME’s economists note, fierce global competition has been instrumental in keeping American companies from raising prices. “We have become the most innovative economy in the world,” says Villamil, “and we keep creating new technologies and jobs because of that.”

The benefits of this success are just beginning to flow to U.S. workers. While Americans’ wages and incomes were flat in the early ’90s when adjusted for inflation, real earnings are rising today in industries from retailing to engineering that are seeing labor shortages. That prompts Sinai to observe, “Finally a well-earned payoff is occurring to Americans in the form of a rising standard of living.”

Yet this improvement has led inflation hawks to warn that gains in worker compensation–which typically makes up two-thirds of the cost of goods and services– could exert an upward push on prices. And such pressure is coming at a time when a U.S. dollar that rose to high levels against the yen has begun to slide down, increasing the cost of Japanese imports. “Right now, the increases in inflation are very small,” Feldstein says, “helped in part by the strengthening of the dollar over the past year. But that will reverse with the dollar now weakening.”

TIME’s economists thus predict that Greenspan will have to raise interest rates again this year. While the Fed left rates unchanged when it met two weeks ago, panel members say another increase is both needed and virtually certain. With the Fed chairman’s vigilance, the economists observe, the expansion can roll briskly into the new millennium.