Taking shots at today's 'Golden Age.'

Quite frequently these days some economist speaks of a "New Economy" or a "Golden Age" in the United States.

Not Victor Zarnowitz. The veteran expert on the business cycle is skeptical of today's widespread euphoria for the economy.

"The arguments in favor of a new Golden Age are not persuasive," says Mr. Zarnowitz, now with the Foundation for International Business and Economic Research in New York.

Recession will happen again, he concludes. Yet he refuses to say just when.

The current economic expansion celebrated its eighth anniversary in March. Most economists don't see any end to it yet. So it could become the longest of all expansions next year.

The leading indicators, a statistical index designed to forecast turns in the economy, dipped slightly in April. It was also reported last week that construction spending fell sharply in April.

On the good news side, a monthly survey of purchasing managers found strength in industry. Further, sales of new homes and automobiles surged.

"Those waiting for the sky to start falling are craning their necks in vain," proclaims Jerry Jasinowski, president of the National Association of Manufacturers in Washington.

Nothing lasts forever

Zarnowitz doesn't see an immediate end to this "long and noninflationary expansion" either. "But it is not going to last forever," he cautions.

The economist began research on business cycles in 1954 at the National Bureau of Economic Research in New York, working with two pioneers in the field, Wesley Mitchell and Arthur Burns. Dr. Burns became chairman of the Federal Reserve during Richard Nixon's presidency.

Zarnowitz now points to hard-to-detect "random elements" in the economy that can bring growth to a halt.

One risk, he sees, lies in the stock market. There has been a "massive influx of inexperienced investors." They could panic with a solid, prolonged "correction," Zarnowitz says.

Or there could be a decline in corporate profits that would depress capital investment and stop growth.

Or the Fed could slam on the brakes, raising interest rates, reducing the supply of credit to the economy.

But Zarnowitz doesn't buy the theory that Fed moves to prevent or cool a boom are always the cause of a recession, as some "monetarist" economists figure. Neither does he accept the view of many central bankers and economists that rapid growth and modest inflation are incompatible.

Pros and cons for expansion

Economists give several reasons for their visions of an endless expansion. Zarnowitz takes a poke at each.

1. "Downsizing" by companies to increase efficiency has made the economy more stable, one theory goes.

This should have no more than mixed and temporary effects, Zarnowitz says. Once downsized, firms will "upsize," hiring and raising wages. A cyclical growth process will continue.

2. Technological breakthroughs in computers will ensure greater stability.

Zarnowitz agrees that computers have contributed to the recent sharp rise in business investments and profits. But he say there's no evidence that this will perpetuate the present expansion.

3. Inventory control has improved, making the economy more stable.

"This claim has some truth," notes Zarnowitz. But business investment in the 1990s has been about as volatile and cyclical as in the past. And this volatility remains large enough to play a role in causing a recession.

4. The share of employment in the US in more-stable service industries has increased relative to more-volatile goods-producing industries.

"The new economy, an increasingly knowledge-based economy, works differently than an economy driven by more traditional physical production of goods," writes Merrill Lynch consultant Jack Lavery.

It's a typical comment.

This shift moderates the business cycle, says Zarnowitz. But he argues that many services are now becoming more cyclical as they confront growing competition at home and abroad.