(00:00:24) Good afternoon, and welcome back to midday on Minnesota Public Radio. I'm Gary eichten. Glad you could join us well to begin this hour of. Midday. We take you back to December 30th, 1998 one year ago almost to the day. Maybe you remember 9300 approximately it was where the Dow sits today in 1999 December. It will be at it will be higher. (00:00:49) And so you're going to say what is (00:00:53) the number? Huh? All right. Well, I wasn't. (00:00:59) Oh, why not? (00:01:01) Yes with unsurpassed courage and certainty Chris Farrell marched out on his economic limb last year to predict where the stock market would end this year 1999. Well today one year later. Chris is back to review that prediction to review the economic news of the past year to look ahead to 2005 by the end of this hour to March back out on that perilous limb. Once again, Chris Farrell, of course is Minnesota public radio's Chief economics correspondent. You can hear him each Saturday on our sound money program and from time to time. He comes by our midday program as well to take your questions. Chris Farrell is our guest. We're talking big picture economics this hour, and if you'd like to join our conversation, give us a call here, six five, one two, two seven six thousand 6512276 thousand outside the Twin Cities. You can reach us toll-free, and that number is 1-800-222-8477 6,000 or 1-800 to for to to 828 Chris. Thanks for coming in. Well, thanks. Having big boy what a courageous fellow. I know I went out just right out there sir problem with tape and archives, you know. All right. Well you, you know, you you had to choke it out, but you allowed us how the Dow might to get to 10,000 last I checked his about 11,400 up what 24% NASDAQ index which has all these technology stocks. That's of about 80% It's right what in the world happened this past year? (00:02:29) It's a wonderful (00:02:30) economy several things happened. The economy was stronger than expected. It looks like it's going to come in at a four (00:02:36) percent annual rate the consensus expectation back last December about 2% inflation stayed lower than expected and then we had the.com Universe. I mean the internet truly went from the fringes of the economy to the center of the economy and it's not just the.com companies but companies like Fingerhut Ford GM Are embracing the internet and so all the as everyone turned toward the internet. There's just simply a lot of sales a lot of computer sold. A lot of the infrastructure was sold that went into building this internet economy companies like UPS FedEx are perceived as benefiting from all these packages that have to be delivered. So we had a terrific (00:03:21) economy. The (00:03:22) unemployment rate dropped a 4.1% isn't that it's just incredible median (00:03:28) household income Rose to about 39,000 that's higher (00:03:31) than the previous peak of a decade ago. So people who are flush consumer spending went up (00:03:37) every year as I recall for the last four or five years. Most economists have said well gee that was a great year. We just had now it's going to kind of slow down. Is there any reason to believe that mm will be any less prosperous than 1999 only because finally the consensus expectation has abandoned. Downbeat forecast.the past four years since 1996 the forecast has been the economy will grow it around a two percent annual rate and inflation will come in around three percent now every year since then the economy is come around 4 (00:04:13) percent and inflation has been below 3% has been about the two and a half percent range. So it's a remarkable economy. So the consensus forecast for the year 2000 is that the economy will grow to three percent rate and then inflation will come in it 2.4% in the unemployment rate of around four point two percent. So there there is a profound shift that's happened in thinking about the economy and his debate about the new economy can this economy grow faster than we all thought it could because of technology and the internet and globalization is their higher productivity. I mean are we just more productive and if we are more productive and we can produce more goods and services per hour of work. That means that companies can pay their workers more and they don't have to raise their prices. Well everyone now agrees we are more productive. That is technology is not just on the fringes of the economy. It's not the same as air conditioning or the elevator which you know had a dramatic impact but nothing like the automobile where the railroad well this is considered like the automobile and the railroad is a profound transformation of the economy is changing the way we live and work and it's showing up in stronger (00:05:19) than expected growth. So the question that I have is not that I just I believe in the new economy. I mean that's been a theme of the past (00:05:27) couple of years but the Euphoria maybe going a little bit too (00:05:30) high and caution. Maybe the note for the year 2000. It does sound to The Outsider a whole lot the rhetoric you hear a whole lot like what we heard right before the big crash in 1929. Yes boy. It's Katie bar the door. There's no turning back. Now. We have entered a new age. Everybody can be rich. That's right. And it was the era of the automobile yet. The era mass (00:05:57) production it was The old line Industries like the railroad and the utilities. I mean they weren't that exciting. I mean we're utilities were but railroad wasn't that exciting money was going to do industrial Americas when the Dow Jones Industrial Average was no longer considered fly-by-night corporations, but this was mass production and it was transforming the world and there are concerns are we entering that period right now is very difficult to determine what's happening to earnings with some of these companies and people go back and look at 1929. One of the things that becomes apparent is somewhere around 1927 1928 earnings projections just went off the people just couldn't figure out what corporate earnings were going to (00:06:36) be and the (00:06:38) projections were all over the lot and people began to easily justify very high projections because people felt that it was a new economy the old valuation rules no longer played a role and that sense of loss of where we are in this economy fed into a (00:06:55) Euphoria. I personally don't think that we are in that type of an error right now. There are wrist and there's always a risk but I don't think and you can never dismiss (00:07:05) a Great Depression. I mean, it happened it can happen again, but I think that there are some buffers in there that would prevent that scenario (00:07:14) at some point though. Don't all these high-flying internet stocks have to make some money. They don't they have to turn a profit. They have to turn a profit and (00:07:23) look what's happening right now. Very retailing stock. See toys was (00:07:26) down what 16% yesterday don't know what's doing today, but it looks like a little bit disappointing a lot of stories coming (00:07:32) out is about a lack of fulfillment orders not going through orders getting lost and so we're seeing a little bit of a correction going on in the internet Market particularly among the e-retailers. Well that's going to spread throughout the internet economy. And the other thing that's going to happen in this internet economy. Is that a lot of established corporations those, you know, disparage brick-and-mortar companies, you know, well, they're embracing the internet but they actually know how to deliver goods and services and so a These.com companies might either fall out of existence or get merged. But many of them are down way below their IPO price. It turns out of the nine hundred billion dollars, which is the market valuation of the internet companies about four or five companies make up 40% of that (00:08:15) valuation. Now, we just did a whole week's worth of programming on this and of course you were Central to the coverage but in a nutshell is Minnesota been left at the left at the gate here in terms of the the rush to the internet. Are we so far behind the curve here that no, excuse me. (00:08:34) I think it's a more optimistic story than that. There is the risk that we will be left behind but there are a lot of good things (00:08:39) happening in the Minnesota economy right now that (00:08:42) suggests with a little bit of a push a little bit of a focus that Minnesota will will be a player in the high-tech economy. We are developing some very (00:08:51) good internet companies. We also have some established players (00:08:54) that are doing well in the internet such as a Fingerhut being sort of the classic example. Um, there's a lot of optimism about the University of Minnesota. And when you look at a high-tech economy the US Central because it's both Central in terms of idea creation. It's also Central that's where the skilled Workforce. They want to be near a good University. Now, there's a sense when we were talking to people that the you had been adrift that the you was an ivory Tower. It wasn't involved in our local economy. The way a Stanford is or the University of Texas at Austin and there's a growing sense under Mark yudof. That is changing. (00:09:29) Chris Farrell is our guest this hour Chris is Minnesota public radio's Chief economics correspondent, and he has come by today to take a look back at what's happened with the economy in 1999 and look ahead to 2000 as we start the New Millennium the new century the New Year you'd like to join our conversation. Give us a call here, six five. One two, two seven six thousand 6512276 thousand if you're calling from outside the Twin Cities, you can reach us toll-free at One eight hundred two four two 28286512276 thousand or 1-800 to for to to 828 now certainly one of the big stories of 1999 was the World Trade Organization meeting in Seattle and the protests that developed in Seattle in conjunction with that meeting what was going on out there. We live in a global economy. And (00:10:24) this is no longer something that economists are policy wonks talk to each other. We truly live in a global economy. That's one of the messages that came out of the whole protest over the World Trade Organization you manage to bring together many groups with different interests who were able to agree to (00:10:42) oppose free trade. Wait, at least the World Trade Organization itself because felt that it did a lot of bad things (00:10:49) and this debate will continue it will be one of the big debates the 2000 and it will go on and in 2000 when the key issues will be China entering the World Trade Organization will Congress go along (00:10:59) with Now President Clinton will appoint (00:11:03) what we call it a big (00:11:04) head a former Congress (00:11:05) person to lead the charge on Capitol Hill (00:11:10) in order to for Congress to approve China going into be so establishing normal trade relations with China. The betting (00:11:16) is the rhetoric will be heated. It will be a genuine (00:11:19) fight but that it will happen (00:11:21) probably with some sort of compromise that perhaps you'll be reviewed every couple years and become (00:11:26) permanent in 2002 (00:11:28) something like that. But that will be one of the truly big battles of 2000 (00:11:33) the protesters repeatedly argued that you cannot it's fine to talk about all this these free markets free trade and all of this but you you have to take into account labor conditions the environment human rights. They have to be part of the puzzle. Yeah do the policy makers. Are they coming around to that that point of view or do they still see? Prayed as a separate issue from (00:12:01) these social issues. It's a mixed bag right now. I mean you have to take seriously that India's unions came out (00:12:09) against including (00:12:11) labor rights as part of the (00:12:12) WTO and they basically perceived it into u.s. Unions perceived it as a way of (00:12:17) protectionism against exporting (00:12:20) Goods that are manufactured in India here into the u.s. OR into Europe the rest of the developed world. So (00:12:26) you have all these different cross currents going on and it was largely the developing nations who were against this because they do perceive it as what's called export protectionism and that they feel that they will be the major that they will largely be hurt. Now. Some of these regimes aren't exactly regimes that we feel particularly good about so you have to take a little bit of a grain of salt but you can't completely dismiss it and it is serious. I think what will evolve over time is an agreement that free trade is basically a good thing, you know, there's some things we don't like about it, but it's basically a good thing and it's a mistake to load everything into the World Trade. Innovation itself but there are alternative mechanisms such as UNICEF to (00:13:03) deal with children's issues or the United Nations environmental program to deal with violent environmental (00:13:09) issues because I mean nobody can dismiss the children's issues or some of the the working conditions in parts of the developing world are some of (00:13:18) the environmental (00:13:18) concerns. The issue is whether the WTO is the right Forum in order to deal with that and my guess is because of developing nations are highly suspicious of the industrial world's reasons for wanting to load it onto the WTO. It will not happen. China will enter the WTO but that some of these other moribund International institutions they're going to be a lot of there will be a lot of pressure on them to become more vigorous to become greater (00:13:43) Advocates and a different avenue to address those issues. Another criticism is that agencies like the IMF the international monetary fund the World Bank and so on have adopted what amounts to a kind of one size fits all approach? That if you do this this and this then then you can develop will give you money and everything will be hunky-dory. Yeah, is there some thought that that whole approach needs to be revised so that different approaches are followed in different countries, depending upon their social makeup. Yes, and I think the IMF is a little more aware of this. (00:14:21) Nobody likes the IMF these days except for if we didn't have it. We'd have to recreate it or create an IMF. It may be what keeps it alive. They made a lot of mistakes in Asia. They truly did and the way that they treated Asia and Russia and Latin America as the same. So the IMF recognizes that there are some changes going on. I think one aspect of the IMF program will remain and that is greater transparency in government greater transparency in the rules and greater openness of markets, and that's not going to change that push will continue. There will be an increased effort against corruption. Corruption is perceived as more of an economic problem these days rather than (00:15:02) something you shrug your shoulders at and say (00:15:04) that's the way it is, you know, they're so they are addressing that more and there will be a greater effort to recognize there's a difference between Poland and Russia and the circumstances that you're dealing with and you can't treat them the same (00:15:17) Chris Farrell is our guest this our he's come by today to look back at 1999 big economic developments of the past year past 20th century for that matter and look ahead to The Next Century. If you'd like to join our conversation give us a call here at 6512276 thousand 6512276 thousand outside the Twin Cities one eight hundred two, four (00:15:38) two two eight two eight. And of course do stay tuned (00:15:41) by the end of this hour we will pin. Mr. Farrell down on next year's number. Okay. I'm ready Terrence your question, please. Yes in this robust stock market why our Healthcare stocks particularly pharmaceutical stocks doing so poorly and what you see is the For those stocks over the next two years or so. (00:16:03) Well part of it is the effect of the internet and computers and software and companies that are building the infrastructure of the internet. There's so much money being made right now the healthcare stocks and the pharmaceutical stocks are being hurt by the length of time. It takes to bring a new product or new drug to Market. There's a the expense of bringing a new drug out has just sword which is one reason why you're seeing a lot of the mergers and Acquisitions and there's a lot of rules coming out in terms of hospitals. And can you see your HMO or can't you see your HMO and some of the class action suits that have been brought against the various hmos. So it's perceived right now. The healthcare is a high-tech sector. It's a very much part of our high-tech sector, but it's also under a cloud a regulatory Cloud some uncertainty about lawsuits (00:16:52) and then you have one area that there's been a (00:16:54) lot of excitement about several years ago and now is you know, nobody wants to touch it which is the whole genetic food side of the business. (00:17:02) Mmm. Health care costs have been going up again fairly significantly after leveling off for quite a while given how Central the whole Healthcare business is to our economy. If those costs continue to spin out of control might that slow down the economy in general and put people in worst rates than they otherwise should be (00:17:26) well, I think it will put people in (00:17:27) worst rates than they might otherwise be because the rut in the ranks of the people who are not covered by health (00:17:32) insurance plans could grow (00:17:34) and it's one of the truly big social problems that we have right. Now. (00:17:37) What companies will probably do if your Healthcare premiums are going up they'll try and pass on as much of that to you as they can and what they can't you'll eat on the wage side. (00:17:47) So overall they will try and keep their (00:17:49) compensation costs under control (00:17:52) that way now the compensation costs are going to go up you can't do it a hundred percent but that will be part of the battle and (00:17:58) then companies are truly uniting around this effort right now everyone. (00:18:02) United around hmos and managed (00:18:05) care. I mean they really gave a big push a lot of the big companies right now would be companies are doing is they've jumped on this recent report that we need to operate our hospitals better. We need to have safety mechanisms and not rely just on a lawsuit system so that there's less medical malpractice going on in better Medical Care and sharing of information. And so that is the big push that's going on right now. Now part of that has to do with Rising premium costs because you have better information. Hopefully better health care that will lower your premium costs or at least prevent a sharper rias's looks like we're having right now, it's also reflecting that a lot of employees are dissatisfied with their current situation (00:18:43) longer-term. Do you see the healthcare Whole Health Care System getting divorced from the (00:18:51) workplace. I've always thought that it should be I still think it should be I have a feeling that if you and I were talking 30 years from now talking about Healthcare. We probably saying the same. It's very difficult to do is extremely entrenched but the pressure towards some sort of Universal Health Care coverage will continue to exist and it will grow and my guess is its some point we'll do it in one way to do that is to separate (00:19:17) employment and HealthCare coverage and what (00:19:21) conversation you have sometimes conversation stick with you and I was talking to the head of human resources at a major multinational corporation. And this was several years ago and we had higher unemployment so, you know slack labor market, but he said, you know, what was the hardest place for us to deal with our labor me where we just have to be really gentle with people where he's a Singapore. I said Aqua authoritarian government says no they have it's the individual that has the retirement plan and the health care plan so they can leave at any time they want and plus it was a good economy and get a job elsewhere. So completely portable health care benefits, which separates your Healthcare from your place of employment would be a wonderful thing for labor. Truly would help change the Dynamics of Labor Michelle your question for Chris Farrell, (00:20:07) please my question is I have about $500 that I'd like to do something with and I have no experience in the stock market whatsoever. So I'm just wondering what would be the best approach like who when I talked to could I should I do stocks or maybe mutual fund and I'm just wondering what I could do with $500. If anything is this money that you can afford to lose this a little bit of mad money. You could go to Las Vegas or you could put in the stock market. Yeah. All (00:20:39) right. First thing we would do is go to a bookstore and get Eric Tyson's Investing For Dummies. Now personally, I hate that dummy's title series is really annoying me. But Eric Tyson is terrific and read the first two or three chapters and then I would open up a mutual fund account personally. My bias would be toward an index fund. If you can or you may want to do something a little more exciting and treat that as part you just $500 is part of your learning experience. (00:21:08) A lot of people apparently have decided to do their own investing online online. Particularly our most people well equipped to deal to do that or are a lot of people (00:21:21) got wish going to be sorry that they that they (00:21:24) left old Bob down at The Brokerage. Yeah. A lot of people are going to be sorry if they're you playing with real money (00:21:30) and I think there's really the way to approach the online investing is there's a tremendous amount of good information analytical (00:21:37) information for individuals (00:21:39) online. It's terrific use it to the maximum. Then there's you know want to have some fun. I want to match my wits in the market. I'm doing my for three be my 401k own my own home. I got some extra savings going and testing and irresponsible exactly. You are extremely responsible and now you want to go out and match your wits. Well you can Trades at $8 a trade so it's not that expensive anymore. And you're going to go out there match your wits against Wall Street. That's fine. Go ahead and do it. Have fun at That's Entertainment for you to sit at your computer and do that. I think that's a great thing and you can learn a lot about markets. You can learn about your personality. You can learn about fear and greed and all those things in regret and overconfidence, but don't put anything real at risk to do that. There's also what will grow over time is as costs continue to drop and just as now you can be able to make phone calls on Sunday for free you're going to be able to essentially trade for pennies to share over time people will be able to construct their own long-term portfolios on the internet not buying and selling that this day trading stuff but essentially create their own mutual funds or their own index fund and that's a wonderful thing, but that still a little bit a ways away from that. (00:22:57) Let's see Bob your question of Chris Farrell. Hi guys, Chris. I know you're a big fan of indexing and I am to been mostly in the S&P but it seems like even with the breath of a 500 stock index the Dow Jones looks a little narrow the the gains and the NASDAQ have been only roughly in half of those stocks. Is it a good idea to maybe move to the ruffle maybe the ruffle 5000 or an all stock index for the year 2000 and average out the gains across all those indexes. I'll take my answer off the (00:23:34) air sure. I like to very broad Market into the (00:23:37) Russell fire the the Wilshire (00:23:38) 5000 of the Russell 3000. Those are two very broad base indexes and the broader base your index probably the less sizzling your performance at any particular period of time, but you are exposed to the market and I think that's really a good way to build a portfolio (00:23:55) are more and more people in terms of are they participating? Painting in these 401ks 403 bees in the lag. Is that continuing to Growers at leveled off its (00:24:05) continuing to grow and there's a piece of optimistic news. It's not growing at the rate that we'd like but there's there's one thing that's been done by some companies here. We're in the typical employment relationship, you know, you sit down and you're going to sign your employee benefits form. And do you want to participate in the 401K the 43 be well, some companies are starting to move from you're automatically enrolled unless you check the box and say you don't want to hmm. And that's one way to get very high participation rates and some of the hospital companies and HMO companies are doing this because they have a lot of lower income employees. The other good news. Is that because of the web. People are now able to create very low-cost 401K plans and there is no excuse today for a small business not to offer its employees a retirement savings plan and as this news gets out there and I think 401K is almost become like Kleenex or Xerox, you know, people know what it is. They know what it means and if they're not participating in it, they feel like they're not participating in the American society me. Why can't I have a 401k? Why can't I have a 401 3B and so I think this pressure will grow and employers will listen and we have a tight labor market and I expect that we'll see a growth spurt largely concentrated in the small business sector. That's the true Frontier right now. (00:25:23) Chris Farrell is our guest this hour Chris is Minnesota public radio's Chief economics correspondent. You hear him regularly on our sound money broadcast. He's come by midday today to take a look back at $19.99 terms of economic news. Look ahead to the new year as well the new century and we'd love to have you join our conversation six five. One two, two seven six thousand six five. One two two seven six thousand outside the Twin Cities. You can reach us toll-free at (00:25:48) 1-800-222-8477 (00:25:52) 6,000 or 1-800 two for (00:25:54) two two eight two eight will get to some more callers more questions for Chris (00:25:58) right after news headlines is Greta Cunningham Greta. Good afternoon, Gary the engines are working again on the hijacked Indian Airlines jetliner still on the ground in Afghanistan. That means there's now heat inside the plane improving conditions somewhat for the hostages as the temperatures hover around freezing at night the engine shut down earlier cutting power and air circulation on board, but the Taliban officials says an engineer was able to repair the aircraft the hijackers are also spelling out their demands India's foreign minister says they want India to release 35ml militants and Fork over 200 million dollars more than 150 people have been held captive on the plane for five days. The Clinton Administration will ask Congress for more money to monitor internet sales of unsafe and unprescribed drugs President Clinton unveiled a plan today for the food. Drug Administration to monitor online drug sales Seattle's mayor says the city's plan New Year's Eve celebration is being cancelled due to security concerns. Mayor. Paul shell says, there's no specific threat against the city, but he doesn't want to take any chances about 50,000 people had been expected to attend the Millennium celebration afternoon concerts and a circus performance will go ahead as planned but she'll says the area will be cleared and the gates locked in the early evening in Regional news leaders of the state's second largest Union will recommend that its members approve a tentative contract settlement reached early this morning, the president of the Minnesota Association of professional employees says the union was close to a strike when the deal was struck union members alleged already had ratified a strike authorization vote. If no agreement was reached by the end of the day yesterday heading into yesterday's talks the union had wanted a 4% raise each year for two years. They got 2.5% retroactive to July 1st and 3% beginning. Next. July top scale employees will also So get another pay increase sooner mape represents about one quarter (00:27:48) of the state's Workforce (00:27:50) checking current conditions around the region. Mostly cloudy skies reported in Rochester reports clouds and 36. It's cloudy in Fargo and 41 cloudy in Duluth and 27. And in the Twin Cities Cloudy Skies a temperature of 39 degrees Gary. That's a look at the latest news. All right. Thank you Greta. It's 26 minutes. Now before one o'clock Chris Farrell is our guest this hour and Chris has come by to talk about the economic news of 1999 and look ahead to 2003 'and as well Chris right before we broke for news headlines were talking about retirement funds 401k and so on. Well at course that raises the next big issue 25 30 40 years from now will (00:28:30) people still be collecting their Social Security (00:28:32) payments or will that program go belly-up is so many people suspect (00:28:36) the safest forecast that anybody can make is that Social Security will be there. They will be drawing checks. (00:28:44) Years from now (00:28:45) it is a popular program. It just is incredibly popular and there's a lot of good things associated with Social Security and much of the financial crisis and crisis. I use you know, I think it's a bad word to be using but much of the financial pressure or the financial crisis that people want to talk about can be eliminated by a strong economy not completely but largely eliminated by a strong economy and high productivity four percent sure. We can't continue to grow at 4% I pray you would actually in my own way being sort of comfortable with that forecast after you adjust for the business cycle, but let's say it's too optimistic 3% Well at 3% a lot of the social security problem does erode it really does so it's a popular program. I think that voters and consumers are rational and liking the program. It's part of most people's budget for their long-term planning that you may not think about it directly. But you have in the back of your mind. Here's the secure part of my (00:29:40) portfolio safety net. (00:29:42) It's a safety net. That's right. There's no real risk there. No one's going to take it away from you. That'll be there. It will be there because the person that tries to won't be an office. (00:29:52) What will or what should presidential candidates be talking about them during the coming year. If not the elimination of Social Security. (00:30:02) Well, I think they should be talking about free trade which is extremely important and you know, since the collapse of the Berlin Wall 10 years ago and where the anniversary of the collapse (00:30:09) of the Berlin Wall. I mean one (00:30:11) of the things that has happened and you know change the world is that barriers have been coming down around the world now we're there's a lot of questioning going on about whether we should erect some barriers or put some some barriers back up. So that's one of the key issues that's going on. What do you think about free trade? What will you do? When there's a recession, what is your policy? What is your program? How will you deal with it? We will have recession. It's very likely that the recession that we have will be brutal. That's the thinking right now and I think it's good thinking if companies can't raise prices when times are good. And this economy has been growing at a four percent annual rate since 1996. We haven't seen anything like this since the late 1960s. All right. So this is really a good economy but companies can't raise prices. So what happens when this economy slows down and you have this force of the internet the e-tailers and they're able to you know sell at a very low price. I mean, the internet is a deflationary force we could be dealing with something that we haven't dealt with since the 1920s the late 90s the 1930s, which is a deflationary environment. It's whether that happens or not. I don't know but it's out there. It's a prospect. Our economy is more vulnerable to the high-tech sector than before and in a way that we used to be vulnerable to the defense Spectrum. And the defense spending will now we're more vulnerable to the high-tech sector. So that's one of the things I like them to be talking about and also like going to be talking about training workers increasing the skill levels of the workers. We have a wonderful opportunity here. We have four point one percent unemployment 4.2 percent unemployment rate if things continue the way they're going we could have a 3.5 percent unemployment rate. When a 3.5 percent on a plane. We haven't seen that since midnight cowboy won the Academy Awards and Norman mailer got the Pulitzer Prize for armies of the night. Well in that type of environment, let's increase the skill level of the workforce. That's where our real wealth of our country is what are you going to do about it? Hmm, (00:32:05) the mere fact that so many people are working now who might otherwise not be working doesn't that in itself raise the overall skill level of the American labor absolutely very much. So and it you know, there's a (00:32:18) it's like an S curve. There's a little bit of a downward Trend because you're bringing people who don't have a lot of skills and so productivity goes down a bit, but then they gave (00:32:27) In (00:32:27) skills to gain knowledge to get a resume. They come more valued employees and productivity starts starts storing. Again. We also have annexed most educated population that we've ever had and we have a healthier population. Then we've had so on the demographic side. This is really a wonderful thing that's happening. (00:32:45) Will the next president the United States have Alan Greenspan to kick around as the head of the fed or he's due to he comes up for reappointment in June. I believe it is. That's right. And it's one of the big questions out there and John McCain got quite a laugh at the New Hampshire debate when he suggested (00:33:00) putting a dark pair of glasses on him and propping him up at the table. And you know, let's just leave Alan Greenspan right there. I think they're one question is will Greenspan (00:33:09) stay and if he doesn't stay who will be reappointed are who will get his position and that's a critical question. I would suspect that whoever will get the position will have gravitas, you know will have the confidence of the markets and the financial (00:33:22) system. So I'm less concerned about that. I'm more concerned but Is the Fed do in the year 2000 the FED has made it clear. It's very worried about inflation. It's hiked interest rate several times in 1999. The economy continued strong. The rest of the world is growing Europe is picking up your absorbs about a quarter of our exports. So, you know Europe is getting stronger. Asia is getting stronger. The global economy is going there doesn't seem to be a Slowdown in sight people are feeling wealthier. The unemployment rate is going down. We don't see inflation, but the FED is worried about inflation. So there's one definition of the FED is that they take the punch bowl away when the party gets going. Well, that's the FED decide that mm a year. They do that. And the theory is they're going to be to attempt a soft Landing. They'll just sort of slow down the economy a bit (00:34:08) to avoid that harsh recession that you were talking (00:34:10) exactly. It's very difficult to do. It's a very tricky game. I don't think it's possible. There's a lot of luck that goes along with it. I mean, it's sort of like the FED is day trader, you know, yeah, I can go on the internet and I can make a lot of money day trading. Well, it's very hard to do timing is very difficult for casting is Called. So that's one of the wild cards out there recessions don't happen because an expansion ages there's no evidence because this expansion is the longest in history in February. We the longest in US history doesn't mean that it will end recessions often come about because the FED makes a mistake. Hmm. They raise interest rates. They slow the economy too much business pulls in its horns consumers puts tarps, you know, slow down their spending and what the goal of a soft Landing turns into something worse, (00:34:59) but then on the other hand if they don't do anything and things do slip out of control by the time their mechanism sets right come into place. It's out of control. That's right. So is one of those judgment calls Greenspan is always lean toward rat (00:35:13) gradualism. The quarter point moves. That's what he likes. It (00:35:16) will continue in 2000 Bob your question for Chris Farrell. Yeah some years ago, excuse me some years ago. I ran across a article that contains something about it. Your teeth curb and just recently my mother dragged out an old article from the old star Journal written by a columnist named Cedric Adams it seem to predict our present Prosperity. I just wonder if Chris would comment on these curves how accurate they are. And so on contradict was a Russian Economist and for coming up with the contoured if curve which Stalin didn't particularly like since the thought that it was not (00:35:55) Marxist enough sent him off to the labor camps and he (00:35:57) died in the labor camps, at least one example of how ideas are dangerous to your health. (00:36:04) It's there there are various different kinds of Cycles or Curves and economic some 10 to 20-year his are I believe 50 or cycles and you know, it's it's looking at periods of time when there's a great surplus of goods and services and then when when things get overheated and has to do with technological Will change big technological changes which happen every once in a great while about every 50 years. It seems I'm always skeptical about these curves. They seem a little bit too much of a if I could remember how to pronounce my Latin duck SEC Mac and I, you know, just a little bit too too much for me, but there is something so (00:36:48) I'm skeptical of using the the curve notion Michael your question, please. All right. Thanks for taking my call you bet. Mr. Farrell put your bear coat on for a while here and it itches what that it's very itchy. Yeah. I'm curious if you're talking about a recession. Let's say there is a real real recession even a depression which of course nobody can predict but could happen and our stock markets really declined by even like 50% What where's the best place to keep? Money, I people talk about having things that have real value in that situation that will always contain some value. But what are your thoughts if you were to talk like a beer and thoughts on monies and allocations at that point sure and this is what I mean. I really do think we (00:37:43) depression is a particularly disastrous event and I just don't see (00:37:48) that on the radar screen, but we could (00:37:50) have a very severe recession. Absolutely. So I'm putting on my beer code right now. I think there are several things one is you would want a fair amount of your money and treasury bills short-term US government securities. You don't have to worry about default (00:38:03) risk, it will maintain its value (00:38:07) more than likely in that type of event. We'd had almost no inflation. So if you're earning, you know, three four percent off your treasury bills, that's real money real gain, you want to focus on your job skills. The real wealth of this country is in we call human capital is in our knowledge and our skills and economists who love to do things like this, you know, they estimate That the real wealth of the country if you look at human capital is that minimum four times what it is of all our financial and household wealth. I mean, it's really our ideas. So you want to build up your skill level. You don't want to be vulnerable and in a downturn the least skilled, the least educated are always the most (00:38:44) vulnerable and have the highest rates of on of unemployment and (00:38:49) I would all my own home (00:38:51) and I think having a place to call your own is a good idea. (00:38:54) I think beyond that I wouldn't do much dramatic unless you truly believe that we're coming to the end of the world, which I don't think that that (00:39:03) we would be and then just one final (00:39:05) aside, which is that all the evidence that we have is that if you buy when markets are way down and you can (00:39:13) have a Time Horizon of a long-term period of time the (00:39:16) ride up is quite enjoyable me ask you this (00:39:19) Chris this kind of advice I think is very helpful. Obviously for people who are kind of economically literate. Written and know what they're you know how all this stuff works and have the time and the patience and the knowledge to to participate in investment decisions for people who essentially just send their money (00:39:40) off. Yeah to to of can we (00:39:42) assume that the people running those funds whatever those funds may be no enough to protect us or they're going to lose their money for us. Now. They're (00:39:52) not going to lose your money for us there. The protections are there. I mean, there's no you're not going to run off with your money and they're not going mean except for a couple. They're not going to put in the Russian bonds or Chinese (00:40:03) Bots. Okay. So let's assume that we're dealing with you know, plain (00:40:06) vanilla stocks bonds high quality stuff, you know, there is no certainty you can do all the right things is when the terrible things about life you can do all the right things and it still comes up and hit you. All right so that can really happen. But when it comes down this personal finance stuff, whether you believe that we're entering an era where they you know, the underlying growth rate is economy is good. Your children going to have good prospects or you really are worried and you think look there's all this stuff going on is economy or something really bad is going to happen when you seriously think about it and the type of person you described does it really affect what you do? Does it really change what you do know you participate in a retirement savings plan mean it's basically, you know, you've got to try and smooth it out. You don't take on credit card debt you own your own home you educate your children and you know you that old adage don't spend more than you earn except for taking out certain, you know, you obviously going to spend more than you earn when you buy a home because most of us have take out a mortgage but you know beyond those things that's how you prepare for all kinds of financial contingencies. If it turns out that life is better than we expected. You'll have the financial resources to enjoy that and if it turns out that life is worse than we expected. You'll have a buffer zone to protect yourself Amy your question for Chris Farrell. (00:41:22) Hi. Yes, I actually was wondering about Roth IRAs. I wanted to see what you thought about Roth IRAs and to see if you thought there was going to be any change in the offerings of Roth IRAs in the future. I keep hearing that, you know, the government's think about making some changes to them. (00:41:39) Well, it's the government and its Congress (00:41:42) and so there will be changes in it in the (00:41:45) future whether they're making them more generous, which is one pressure. There's a mood to tie attached into 401 K's. I mean, there's all kinds of things going on. But the Roth IRA for most people is really just a very good savings vehicle particularly younger people you put an after-tax dollars up to $2,000 and when you withdraw the money in retirement, it's tax-free and or if you don't if you're you know well-heeled and you don't need to withdraw it you can pass it on to your heirs. Mmm another big picture (00:42:15) question Chris lot of concern between what many people describe as Growing gap between rich people and poor people not only around the world not only in terms of Rich Nations poor Nations, but here in the US right here in the US number one. Is that is there a real Gap here? Because you keep hearing some there's some dispute about that, I guess. Yeah, but there it's there is a gap. Okay how serious a threat is that to the long-term health of this economy? Okay. I'm in terms of is there a Gap there's there's a debate (00:42:54) on you know, is it as wide as we when you look at income it's as wide as it's ever been at least as far as we can measure when you look at consumption measures it narrows it somewhat so you end up in a position that says look the really extremists are looking at the worst set of data that they can and they're wrong. The real optimists are probably pushing the margin too fast inequality has risen in this period of time since the 1980s. It's stopped Rising. About the past three or four years. It's it's not decreased but it stopped Rising a big part of the inequality story was the gap between a college education and not having a college education in this new economy that we're living in valuable high-tech. So there is a real issue there. What is starting to happen now though is a shift talking about inequality and talking about poverty and poverty inequality or not the same they feed off of each other and poverty is a real issue. The digital divide is a real issue and we want to bring more people into this economy. The the probably the biggest Gap in this economy right now is not income. It's not consumption. It's not computers. It's not health care. It's education education is the true Geographic divided in this society and to the extent that the education system improves and improves in the inner cities and in certain rural areas that will narrow the inequality Gap more than anything else. Mmm to the That the status quo was maintained that's probably the most disturbing divide that we have because the way our economy has evolved over the century, you know, forget 1999-2000 take a look at our economy or the sensory over time. This economy has become more technologically sophisticated and made greater demands on people in terms of knowledge and rudiments and a lot of that technology gets simpler to use mean when you (00:44:48) twenty three twenty thirty years ago. He operated a cash register. You actually had to do arithmetic. (00:44:53) Alright today use the cash. You don't have to nevertheless. There's a greater Demand on our knowledge than before and so the Gap that is truly disturbing is the education Gap and I think that's widely recognized. I think there's a lot effort question is whether it succeeds (00:45:09) Microsoft now we break it up one of the great success stories from what 1980 just yep 20-year run as King of the Hill. What's going to happen with Microsoft in 2000? (00:45:25) Well the issue of whether or not to break up Microsoft is being taken very seriously and Joel Klein the head of the antitrust division has hired Robert Greenhill when the Great characters of the merger and acquisition era of the 1980s. He was headed mergers and Acquisitions at Morgan Stanley and he's hired him to make an evaluation of whether or not to break up Microsoft. And what would be the impact and how would you go about doing it? And right now you have a sort of 50/50 divided we went back a year ago. Nobody connected to break up Microsoft and never do that that hurt Innovation. Now, there's a sense that maybe it's not such a bad idea and Wall Street is come out with a number of analysis and although I'm very skeptical of this figure extremely skeptical Wall Street analysis as Microsoft could be more valuable in the stock market broken up done together. So my own sense is in the end Mike. Awful makes them true compromises on the way, it does business and maintain itself as a single company, but there will be a lot of pressure to break it up and the State Attorney General's would like it broken up. That's basically the pressure that they're putting on the and the federal antitrust division (00:46:38) broader question. There's so many mergers. Yeah bigger bigger bigger bigger bigger. Is this a healthy Trend? It seems like supporters argue boy were in the global economy now and we really need to be ready to deal with the evil forces and you know Timbuktu and but then on the other hand you get the sense (00:47:01) that we've been down this road before. Yeah. It's a healthy Trend that is entered the unhealthy phase of the trend. I mean, it's true. We do live in a global economy. There are reasons why you need to get bigger and all this technological expenses, but I don't know. It's research realm is getting out of control. And at the same time that the mergers are continuing mergers from several years ago are coming out with disappointing earnings to coming out with sheepish announcements that we weren't able to merge these divisions the way we thought we would they be might have to spin this off and I so I think as more and more of these mergers come out that they're not working. They're just simply not working and they're disappointing. You know, I think just going to be hopefully a little bit of a cooler appraisal toward these mergers and Acquisitions and in some Industries, there's too much concentration. Now that the global argument is true, but it's not true for everybody. It's not true for every industry but it's being used by everybody. (00:47:57) Not a lot of time left. Let's get at least one more caller on here Jordi a (00:48:00) quick question Chris for Chris Farrell, please. (00:48:02) Hi. Thanks Gary and Chris. I was curious to hear your comment earlier Chris that 401k is to become like Kleenex and they have I think everyone thinks that their retirement plan is a 401k even though it isn't and you had said that every business every Small business that there's going to be a boom and 401ks and I think you're overlooking one of the best retirement plans that are out there and that's a simple IRA which in most cases is more appropriate for the smaller business. It's certainly less expensive to set up and there is no Administration just as a 401k is appropriate in many cases. There are other plans besides a simple area that may be better. So I'd be curious to hear your comments just in general about retirement plans in the variety that are available not just the 401K. So I agree with you. I mean, there's a simple IRA there's a SEP IRA when we enter into this world of I mean, my personal complaint (00:48:52) is The the reason why these tax-deferred savings plans is, you know, we want to encourage people to save for their retirement and we get there's a tax deferral and we have the 401K the 43 B this.f the simple, (00:49:04) you know, and you can see the 457 if you're a state local government employee and (00:49:09) they all have slightly different rules. If you work for a private company has a 401k and you work for a non-profit with a 403b. You can't roll over your 401k and do a 403b even though they look exactly the same and have exactly pretty much the same rules if you have a 457. Well, you know, if you have 457 you can't do a rollover Ira when you leave your employment. I mean, it's ridiculous. I wish they would just simplify the whole thing. Just say we've got 1 x and the rules are the same and you know, it would actually probably encourage a lot of people even more people to do it. But it's the the caller's point is absolutely right for 1K may not be right for all small businesses as simple as out there. There's a step. So there are a lot of Alternatives out there. I think what the 401K the changes happening with technology and the Mission that it can be done. Very cheap is that it will encourage more small businesses to look at their Alternatives. (00:50:00) I think it's fair to say the 20th century was the American Century. Yeah. What about 21st (00:50:09) right now the (00:50:10) 21st century also looks like the American Century. There's something happening that is actually a little bit disturbing (00:50:16) which is that the US economy is growing its share of the world economy. It's growing at rather than shrinking it and we are the wealthiest economy in the world and you would think that we'd be shrinking as the rest of the world grew but because of our lead and the high-tech areas the internet are lead in certain management practices the flexibility of our labor market institutions relative to the rest of the world the most are highly educated population and certain government policies deregulation a number of other factors. We are widening the gap between us and the rest of the world now, hopefully, Ali the signs that Europe is embracing the internet that Asia and Latin America and bracing the internet that that Gap will narrow and that we will not call the 21st century the American Century mmm, but as of right now if that is the story and it really should be the other story, which is that the rest of the world (00:51:11) games on us that be much healthier. So China, we always hear China's going to overtake Us in swamp Us in 50 years not true. (00:51:17) I does not appear right now does not appear true at all and China has so many obstacles, you know, there's resistance here to the WTO. You can imagine what the resistance in China is among the state-owned Enterprises these giant but heinous that don't make any money have lots of employment. I mean they are truly opposed to WTO because they're going to get slaughtered with more open borders and then they face the prospect of laying off 5,000 employees. (00:51:42) You put it off as long as you can Chris. I know you wanted to keep talking there. So we'd run out of time. Well, I was trying I was trying we've got a minute you got a minute. All right. Now that stock market will be higher interest (00:51:53) rates. Be lower the story of the year 2000 will be that inflation is lower than anybody thinks and the stock market will be higher and you're going to ask me what number and of course of (00:52:06) course. All right. Well, I'll say (00:52:07) the stock market will be up by 12 percent. (00:52:12) So that would put the dowel at about let's see 1400 more points that would be about where it was at 12 13, but 13,000. Yeah. All right. Okay. Thanks Chris. Thanks a (00:52:25) lot. And I'll sort of public radio's Chief economics correspondent. Chris Farrell joining us (00:52:31) this hour of our midday program to take a look at the 1999 backward and look ahead to 2000 terms of economics (00:52:40) like to remind you that programming an NPR is supported by Sony Pictures Classics presenting (00:52:44) all about my mother and I 1999 Khan film festival winner playing now at the Uptown Theater in Minneapolis that does it for mid day to day tomorrow Chris Gilbert will Joining us will look at politics in the year ahead. Also special installment of the Minnesota Century series tomorrow on midday, perhaps you're at your computer right now. If so take a minute and go to npr.org and check out all that, Minnesota.