WASHINGTON -- Perhaps we should all stop worrying about whether the stock market can stay at 7,000 -- and start wondering about when it will hit 14,000.
I kid you not. A good case for this tendency appeared recently in the Wall Street Journal, headlined "Global Growth Attains A New Higher Level That Could Be Lasting." Actually, the Journal article left out a few things. It all may work out even better.
The core datum for such a view comes from the International Monetary Fund: Global economic growth, as measured by the Gross Domestic Product, has been growing at almost 4 percent a year for the last four years, including a forecast for the rest of 1997. That's about double the 2 percent rate of the previous 20 years. Moreover, the IMF projects annual growth at somewhat higher than 4 percent on into the new millennium. Question: Is this just a normal fluctuation, or is something big going on?
A "Golden Age" dawns
As reported by the Journal's G. Pascal Zachary, the answer is not only "big," but approaching what some experts call the dawning of a "Golden Age" that could last for decades.
The case for a Golden Age blends a number of on-going trends. Technology and innovation are booming. Free trade and free markets are more extensive than ever. Foreign investment is soaring. Property rights are more respected than ever. Governmental regulations are decreasing. Privatization is increasing. Inflation is low and falling. Budget deficits are diminishing.
The word "leapfrog" is hot. Listen to the U.N. secretary general, Kofi Annan: "A new golden age . . . [is coming, in which poorer nations will] leapfrog what others had to go through to develop."
Unstressed in the Journal story is a root cause for much of the above: The American and Western victory in the Cold War. When the Soviet Union collapsed, the ideology of state control of the economy went down with it, allowing for more rapid economic growth.
The Cold War's demise also accelerated a tidal wave of political democracy, as detailed in Michael A. Ledeen's new book, "Freedom Betrayed" (American Enterprise, $24.95) -- although it is Mr. Ledeen's view that the older democratic nations are tragically "walking away" from that democratic revolution. Among other things, political democracy provides greater flexibility to change course if something isn't working well in the economy.
Also unmentioned in the Journal piece is the remarkable demographic change going on in the less-developed countries. In the last quarter of a century, while doomsayers kept screeching about a "population explosion," fertility rates in these countries have dropped from about 6 children per women to about 3.3 children per woman. The trend is still down and apparently accelerating.
In the long term, such a plunge may have some negative effects. But for the short and intermediate term, its effects are highly positive. Families with 2 or 3 children have much more per-capita income than those with 6 children. This translates into a quest for consumer goods, which triggers massive economic demand.
This surge in economic development in the less-developed countries can be difficult for some workers in modern countries. Some jobs in some industries move overseas. But there are also massive benefits. Prices in the malls come down. And other industries fly -- like airplane manufacturing, led by America's Boeing company. The world's fleet of airliners should double in the next 20 years, at a price tag of $1.1 trillion. About 75 percent of the new spending will come from overseas.
In the developed world, no nation is better positioned to gain from this process than the United States, which has more technology, more flexible labor markets, and more domestic deregulation than the still-sluggish European nations or Japan.
If economic growth is translated one-to-one to growth in the stock market, it would take about 35 years for an economy growing at 2 percent to push a market at 7,000 to 14,000. In an economy growing at 4 percent per year that doubling takes place in 17.5 years, putting a big bounce in your retirement savings.
But from 1950 to 1973 the global economy grew at about 5 percent. At that rate the market would double in only 14 years. Moreover, if it becomes clear that the growth rate is not only ascendant, but stable, corporate profits and share prices could easily rise faster than economic growth.
The proprietor of this column does not offer stock-market tips. Vicissitudes remain, as always. Economic history is littered with the skeletons of "new eras" that never quite materialized (along with some that did). Perhaps an "irrational exuberance" is at work, as Alan Greenspan had suggested. I would prefer to see it as "rational expectation."
I'm not saying buy, I'm not saying sell, but I'm bullish on the planet.
Ben Wattenberg is a syndicated columnist and the host of the weekly public-television program, "Think Tank."
Pub Date: 3/18/97