Happier days.

ANY forecasting of how the U.S. economy will do in 2005 must take into account some wild cards: the slumping dollar, the trade and budget deficits, rising interest rates, soaring oil prices and slow job growth.

Then there's the continuing war in Iraq and the scary talk of revamping Social Security and other federally supported programs.

It's enough to make most economists predict the worst for next year, and they are: economic growth at 3.5 percent from 2004's estimated 4 percent, and inflation at more than 4 percent from last year's 3.7 percent.

Why the pessimism?

In 2005, gross domestic product should grow 4.5 percent to 5 percent; the consumer price index should rise just 2.5 percent; productivity gains should be an average of 3 percent; and short-term federal funds rates should show moderate increases until the Fed reaches a "neutral" rate of 3 percent to 3.5 percent.

The economy has reached the high-growth, high-productivity, low-inflation and low-interest-rate environment I predicted would come out of the late 1990s Internet boom.

In May 2000, here's what I wrote about the full implementation and integration of the Internet occurring in this decade:

"Productivity gains will result as more resources are freed up in B2B relationships and are devoted to service-oriented or customization tasks. A virtuous cycle would ensue in which more non-inflationary domestic demand is generated from the implementation of new technologies, all of which would take place in an environment of low inflation and interest rates. As the economy starts to generate rapid growth, long-term interest rates can stay relatively low because productivity gains should help to damp I upward pressure on inflation."

We have reached that point. In 2004, virtually no one could understand why the long-bond yield stayed close to 4 percent, while the economy was growing near 4 percent. The answer was that higher productivity was allowing it to do so.

The Federal Reserve's Flow of Funds statistics recently showed that the virtuous cycle of demand is working--2 million additional millionaires were created from 2000 to 2002. As a country's standard of living rises, so does the demand for different goods and services. And the customization of those goods and services will flourish. What a surprise!

Back to what's ahead. Will personal consumption follow the consensus out there and decelerate? Why should it decelerate when wealth levels are rising? Consumption will grow at an annualized rate of 3.5 percent, just slightly below last year's estimate of 3.9 percent. If that prediction is wrong, it will be because it is too low.

As for housing, some prognosticators say a bubble is waiting to burst as both short- and long-term interest rates rise in 2005. Sure, higher interest rates will moderate "housing exuberance," yet longer-term demographic factors and wealth creation will keep the sector more robust than anticipated.

How about capital investment? No less than 10 percent real growth. Chief executives have been cautious. Fears of another Sept. 11-type terrorist attack put capital spending for technology on hold, yet the more those fears have subsided, the more new investments have been made in hardware and software.

The rest of this decade will mark a great transformation of our antiquated federally funded programs: Social Security, health care and education. These must be brought into line with today's economic realities. There has never been a better time to rethink these programs and update them with the current high-growth, high-productivity economy. Pessimistic for 2005? Not here.