Will the economic expansion just keep rolling on? Probably not. The economy has certainly demonstrated that it can sustain higher rates of growth than most economists thought possible. This higher speed limit is one part technology, one part greater competition, and one part belated recognition that the earlier pessimism about the economy's potential was wrong. The economy could well have achieved somewhat higher growth and fuller employment without inflation all along.

Even so, that doesn't mean we'll never have another recession. The entire history of industrial capitalism is one of unexpected shocks. These setbacks have often been compounded by bad policy. Most recent recessions have resulted from the Federal Reserve overreacting to inflationary pressures or using the wrong tools. The current Fed chairman, Alan Greenspan, has been less inflation-phobic than most of his predecessors. But Greenspan is now playing a very risky game, tightening money even while inflationary pressures are largely imaginary.

What could derail the economy? The Asian financial meltdown was a near miss. Energy inflation may yet cause trouble. Oil prices are not quite at the point where they could signal general inflation and miscue the Fed into triggering a recession. But they are close.

The American economy also suffers from structural vulnerabilities, which are the subject of several articles in this issue of the Prospect. They include a persistent trade deficit. Eamonn Fingleton explains how that deficit reflects a hollowing out of American manufacturing. For now, a strong dollar gives us low inflation, despite our heavy dependence on imports. But if the trade deficit persists, foreigners could lose confidence in the dollar, and the bill could suddenly come due. Our prosperity is also reliant on the "wealth effects" of the extended stock market boom, which could go into reverse with a serious stock collapse, as Dean Baker describes. And both households and businesses are now more heavily dependent on borrowing than at any time during the postwar era.

A recession could also be more problematic than in the past because the economy today has fewer shock absorbers. Unemployment insurance covers relatively fewer workers and for shorter periods. Welfare, as an entitlement, is gone. Even the cut in military spending, relative to Cold War peaks, means one less source of reliable stimulus from government.

Other structural vulnerabilities include the fact that the boom, despite its record length, has still not significantly lifted incomes for most Americans. Savings rates are at an all-time low because ordinary people spend every nickel in order to sustain consumption patterns. Hans Riemer and Helene Jorgensen describe a "permatemp" economy, where more and more young workers are temps. Because of trade and the relative weakness of unions, even a full-employment economy has not done much for worker bargaining power.

The high cost of housing seems to command attention everywhere but in public policy. During the postwar boom, we had high growth and near-full employment, yet housing remained affordable because land was still cheap--and because government built subsidized housing. The boom in homeownership, in turn, took pressure off rents. Today, more units are being removed from the subsidized housing stock than are being added. The old rule of thumb was that you could afford to spend a week's pay on a month's rent. For younger workers today, the norm is more like two weeks' pay.

A recent report by the Conference Board, "Does A Rising Tide Lift All Boats?", underscores the unevenness of the boom. The Conference Board is a business-backed, Rockefeller Republican sort of outfit--hardly a bunch of radicals. According to the report, poverty rates among full-time workers actually increased even during the sizzling economic growth from 1996 through 1998. (The final 1999 numbers are not in yet, but as the report points out, growth was no higher in 1999 than in 1998.)

Some Keynesians have long maintained that wild disparities of income and wealth are bad for the economy. Presumably, an economy of broadly distributed purchasing power is good for consumer demand, while a trickle-down economy leaves fewer people able to buy the products that create jobs for other people. But very rich people also create a lot of demand, so it's not clear whether inequality, by itself, is bad for growth. The potential instability of a gilded-age economy probably has more to do with overreliance on inflated stock prices and financial maneuvers, and a general dependence on borrowing, than on mal-distribution of income and wealth per se.

lmost by definition, an economic shock is an event we didn't anticipate. But if we can't predict what will derail the economy, we can certainly think about making that event less likely or of shorter duration should a recession occur. This is the subject of Jeff Faux's article.

The Federal Reserve would be wise to direct its fire at the purely speculative forces in the economy rather than slowing growth generally. Elected officials, Democrats in particular, should reconsider their worship of budget surpluses. When recession comes, government outlay is the most reliable source of recovery. And the prophets of the new economy should pause now and again to read economic history and consider how great technical invention often co-existed with great economic instability. Louis Lowenstein, who occasionally writes for this magazine, likes to recall the words of the great financial analyst David Dodd: "The four most dangerous words in the English language are 'This time it's different.'" ¤