Peter Calabrese Economics 101 Dr. Maglione March 22, 2000 How has your life changed since 1991? Have you noticed: an increase of material goods around your house, a new car in your driveway, or a little bit bigger gut due to eating more prime rib and filet mignon. If you have answered yes to any of these questions you are among the millions that have benefited from the economic boom. The economic boom refers to the period of economic expansion that started in March of 1991 and is still happening to this day. The following report will analyze various aspects of the economic boom including: what contributed to the boom and the areas of the economy which are positively and negatively affected.
It will also review how long it is projected to last and possibilities that could send our economy into a recession or even depression. “The Economic Boom” as previously stated refers to the period of economic expansion that started in March of 1991 and has been proceeding for the past 108 months. These 108 months have been the longest period of economic growth ever in American history. The stock market is growing faster than it ever has before. Unemployment is at an all time low and whats even more impressive is that inflation is staying down. As of February 2000 over 100,000 people were earning over a million dollars a year. It seems as though everything is contributing to the “Boom”. Suddenly there is an increase in entrepreneurs, these entrepreneurs create jobs for people.
The stock market is reaching record heights and with unemployment at a low people have money to invest in companies. Stocks now account for 54% if household financial assets. 40 million investors have entered the market since the Boom began. The end of the cold war is another of the more important events leading to the Boom.” With the collapse of the Soviet Union, America has been able to reduce its emphasis from national security to economic growth. Now instead of making wartime supplies with increased tax revenue the government can set it sites on balancing the budget.
To further increase American production and sales European and Asian countries began dropping trade barriers. Finally and perhaps of most importance is the new technology. Technology is paving the way toward the future. Everything from online stock trading to car companies such as Ford ordering supplies. Online buying or e-commerce has cut cost and the time that it takes to ship a product.
Free markets incorporated states that purchasers are saving anywhere from 2% to 5% by letting suppliers bid for business online Gartner group estimates that technology investments will rise from 3.5% of revenue which it is now to an average of 5.8%. The internet also allows instant analysis of goods farmers can find where they will get the highest prices for their crops, and after these crops have been delivered they can log onto the net to see how their product compares to others of the same type. Finally the net is also used to collect information from customers. This information can then be used to design a more desirable superior product. For the most part the main part of the economy that is positively affected by the “Boom” is technology and anyone that has anything to do with technology.
From technology stocks to business that process orders online technology is making the market turn. However certain parts of the economy seem to be going belly up. Low price imports from developing countries are wiping out thousands of American jobs in the steel and textile industries. As a matter of fact even in this time of economic wealth 44 million Americans are still without health insurance. Finally the gap between poor and rich is enormous, The bottom fifth of US households receives less than 4% of the national income with the top fifth is responsible of obtaining more than half of the income. How long will the “Boom” last? No one can really tell for sure, but predictions can be made as to why it will either bust or continue.
In a recent interview with President Clinton he states the reasons that he believes the boom will last. First the president states that the hard times American industry had been through in previous decades paved the way for business restructuring and, higher competitiveness and increased output because of new leaps and bounds in technology. Furthermore he states that groundwork laid by previous administrations for open markets allowed increased trade with foreign countries in Europe and Asia. The economy is so strong now that it is able to absorb high price such as oil shocks. Finally when asked about questionable lending President Clinton states “My observation is that even though some lending may be questionable most will contribute to the long term growth of the economy” As much as Clinton tries to provide a positive attitude for speculators there are strong reasons to believe that the boom will cease. Economists say that because this boom is driven by technology there is a higher chance that the boom will end. This is because this new technology has an initial high startup cost. When these systems are finally set up though there is a relatively low cost of operating.
Once these systems are up and running business are more susceptible to fixed costs and falling revenue. Secondly the market is growing only on technology stock, while other areas are experiencing little to no growth. Most money is invested in Technology stock, so if this one part of the market fails most people who have money invested stand to loose these assets. Finally if the market slows and downsizing is needed 3% of workers are employed by temp services who can easily be laid off.