Calm Down. That Wolf at the Door Has Been Here Before.

By BEN STEIN

Published: May 23, 2004

LATELY, even more than usual, the word of the day is fear.

Fear of inflation and rising interest rates. Fear of oil shortages. Fear of rising energy prices, which is closely related. Fear of terrorism. Fear of rising - and of falling - commodity prices. Fear of a growth spurt in China - and of a slowdown in China. Fear of an excessive trade deficit, and of too much debt at both the federal and household levels. Fear that the global climate is changing - and, now, that the earth is growing darker year by year (although it is possible that the glass cases covering the measuring devices became dusty.)

Some of this is hitting the markets hard. Markets supposedly climb on a wall of worry when they're going up, but abhor uncertainty when they're going down. There is a bromide for every market situation. After all, there is always fear of something and always some market movement each day. And always someone trying to explain it. In particular, fears of escalating prices and rising interest rates are rattling the equities markets and laying waste the fixed-income markets.

To be sure, there is always reason for fear. We are mortals. The markets rightly prefer lower interest rates for the discounting of earnings to the present, within our finite life span. When bond rates rise, older, low-interest-rate income securities fall in price, to raise their yields accordingly. This is real and sensible. But the degree of fear appears to be approaching hysteria in some quarters, and this may be overdone. After all, good decisions are rarely made in a state of hysteria.

One of the best antidotes to fear is to consult with reality. Another is to consult with experience. On both counts, there is a certain amount of cause for optimism.

For one thing, we are in the middle of a powerful recovery from the slowdown that began in 2000 or 2001. Corporate profits have reached historical highs. The stock market, as measured by the Dow Jones industrials and the Standard & Poor's 500-stock index, is at a more sensible level, compared with earnings, than it has been in more than five years, and possibly longer. In other words, stocks are priced more sensibly by historical measurements than at any levels since the bubble. The stock "market" is a market for buying future earnings, and, at least for the Dow, these are priced more reasonably than they have been since before Bill Clinton's second term.

Housing is phenomenally strong. A record share - more than two of three - of Americans own their own homes. A high rate of home ownership is usually considered a sign of economic strength; it is also a prime cause of the increase in household indebtedness, as people acquire mortgages. Even with rising mortgage rates, there is little sign of a construction slowdown.

The "jobless recovery" is over. New jobs are running at close to 300,000 a month, well above the average of 115,000 added each month in the era since World War II. There is even rapid growth in manufacturing employment.

The economy now has a good kind of inertia on its side. Recoveries in the postwar era have tended to last about 50 months, on average, and they have generally grown longer as time has passed since V-J Day. If the current recovery started near the beginning of 2002, it still has at least two years to go - and probably more, if it is in line with the average.

What about the inflation and the oil and the commodities and the rising interest rates? Well, as Roseanne Roseannadanna used to say on "Saturday Night Live," "It's always something." But oil prices tend to fluctuate greatly when there is terrorism near oil-producing areas. So far - and this is a fascinating fact in and of itself - there has never been a long-lasting interruption in supply because of terrorism. Sharp price increases in oil tend to be followed by price declines.

(I hasten to add, however, that this is no excuse for not having a national program of conservation, turning coal into oil and doing anything else that will reasonably reduce our energy dependence on people who hate us. This kind of Project Independence, first proposed by my former boss, Richard M. Nixon, is long, long overdue.)