So what will the New Year bring? After reading through a number of forecasts for 2002, as well as listening to this show, it's clear that a consensus has emerged among the Wall Street forecasting fraternity. It could be summed up as, "better, but not great."

Specifically, the recession will end sometime during the year. The downturn could be the mildest of the past half-century. However, the subsequent expansion will be muted. The stock market should show a small gain for the year, a welcome respite from the losses of the past two years. Interest rates will go up a bit as the economy improves. The main downside risk to any forecast is the horrendous possibility of another terrorist attack against Americans.

This well-hedged, modestly upbeat consensus forecast is reasonable, especially considering all the uncertainty unleashed by 9/11. Still, it's always productive to think about where the consensus could go wrong in a "big" way. For instance, maybe the economy rapidly returns to a late 1990s-style boom. But the case for fast growth isn't convincing. The risk that the U.S. economy sinks into Japanese-style stagnation also seems remote at this juncture in U.S. history.

No, the big surprise could be that the forces of deflation will gain momentum even as the expansion unfolds. The technological revolution, coupled with the worldwide spread of capitalist competition, will continue to drive prices lower.

The U.S. may be entering a period where falling prices are as commonplace as rising prices were from the 1960s to the 1980s. Indeed, deflation, not inflation, was the normal economic condition before World War ll. America's wholesale price index was essentially unchanged from 1790 and 1945. The underlying trend was toward mild deflation punctuated by bursts of virulent inflation (usually during war years) and bouts of severe deflation (typically during a downturn).

Yes, deflation is an outlier forecast. But if there is a major economic surprise over the next several years, it could be how the U.S. went from a half century of worrying about a general rise in prices to figuring out how to cope with a general decline in prices.