George Will

Various U.S. states and municipalities, too, are scrambling for higher returns through investments in equities because they have made $700 billion in unfunded pension promises to public employees. Stephen Schwarzman, CEO of the Blackstone Group, a large private equity firm, says, "In our experience, there is virtually no difference between going to a sovereign fund (for investment capital) and going to a state pension fund in the U.S." Because U.S. policy endorses the free flow of capital around the world, inflows of foreign investments should be welcome -- if the motive of the nations operating sovereign wealth funds is profit-maximization rather than political power.

Chris Cox, chairman of the Securities and Exchange Commission, says the SEC's mission is to prevent fraud and unfair dealing, and sovereign wealth funds could complicate that mission if the governments operating them are both market players and referees. Or if the governments use their intelligence services' covert information collecting to give their investors information advantages. Or if the funds' lack of transparency contributes to market volatility because of uncertainty about the funds' allocation of assets. The blurring of the line between government and private economic activity is potentially troublesome. Still, the funds are not large relative to the world economy or even to the $14 trillion U.S. economy, which is larger than the next four largest economies combined -- Japan's, Germany's, China's and Britain's. Russia's economy is about the size of New York's and Arizona's combined; India's is about half the size of California's.

Today's Americans, their pain threshold lowered by the successful modulation of business cycles, now regard recessions as not mere misfortunes but as violations of an entitlement to perpetual economic serenity. In the 50 years prior to 1945, contractions were frequent and ferocious enough to fray the social fabric. There were three contractions of 5 percent of GDP, two of 10 percent and two of 15 percent. Since postwar demobilization, the most severe contraction -- that of 1982, when President Ronald Reagan and Fed Chairman Paul Volcker stifled inflation -- was 1.9 percent.

That recession ended in November 1982. If another recession did start last month, then in the 302 months from November 1982 through December 2007, the economy was in recession only 14 months -- 4.6 percent of the time. The economy was in recession 22.4 percent of the time between 1945 and 1982.

A recession-free economy is neither an entitlement nor, truth be told, desirable: The "wisdom of crowds" is real but even markets make mistakes and recessions, aka corrections, are, by definition, constructive. Even so, the modern economy's rhythms are much less alarming than any previous generation could have imagined.


George Will

George F. Will is a 1976 Pulitzer Prize winner whose columns are syndicated in more than 400 magazines and newspapers worldwide.
 
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