1990S U.S.: WHAT MORE COULD YOU ASK?
Unemployment: Under 5% this year Growth: Modest but steady; 2% average this decade Inflation: What inflation?
ECONOMIC BACKDROP Even veteran economists are rubbing their eyes in disbelief at how well the U.S. economy has behaved this decade. For years policymakers couldn't figure out how to reduce joblessness without flaring inflation. The 1990s finally revealed the secret: end the cold war; slash military spending. Pare annual federal budget deficits. Have a central-bank chairman who can deftly apply the monetary brakes to hold inflation down without killing the expansion. Voila! The healthiest economy in recent memory.
COMPETITIVE ADVANTAGE The demise of the Soviet Union shifted resources from defense to more productive uses and opened new export markets, labor pools and natural resources. Government's belt-tightening means Uncle Sam needs to borrow less, leading to lower interest rates. This year the deficit is expected to shrink to about $70 billion, down 75% from $290 billion in 1992. The annual red ink is now less than 1.4% of gross domestic product, the lowest of any industrialized country. Result: a productivity-driven boom.
WHAT WILL KILL THE BOOM Perhaps another oil shock. But the economy is in its seventh year of expansion--better than the 1950s and the Roaring Twenties. And this expansion should last out the 1990s, which would set a record for duration.
1609-1713 DIVERSITY BRINGS ON A GOLDEN AGE FOR THE DUTCH
Growth: The economy tripled in size Inflation: Manageable, lower than the rest of Europe
WHY IT THRIVED The Netherlands of William of Orange, Rembrandt and Descartes flourished through its diversity. The country welcomed immigrants fleeing persecution elsewhere in Europe. Its religious and cultural tolerance attracted merchants, artisans and financiers whose skills helped their new homeland dominate pre-industrial Europe. The population more than doubled, to 1.9 million. The recognition of property rights and contracts fueled business activity.
COMPETITIVE ADVANTAGE The Netherlands had more than half the world's merchant ships. It ruled trade and shipping not just in Europe but throughout Iberia, Africa, Asia and South America, led by the famed Dutch East India and Dutch West India companies. (A forerunner of the latter founded New York City.) Amsterdam became the global financial capital; Dutch workers' wages were Europe's highest. The link between freedom and entrepreneurship was not lost on Adam Smith when he wrote of the virtues of free-market economics.
WHAT KILLED THE BOOM To protect its merchant fleet, Holland built an armada larger than the British and French navies combined. But the cost of this outsize national defense caused taxes to rise sharply, and the Netherlands still lost its naval supremacy. The result was the end of Dutch mastery.
1837-1914 HAIL, BRITANNIA!
Unemployment: Half a century averaging just 4.3% Growth: A steady 2.3% Inflation: None!
ECONOMIC BACKDROP At 18, a girl named Victoria became Queen of England in 1837. Her 63-year reign, the longest in British history, spanned an era in which the country became the world's richest and most powerful. Colonial expansion reached its zenith; Britain ruled about 25% of the world's lands and population.