This is the way the recovery ends -- not with a

[Dave Farber <dave () farber net>]

------ Forwarded Message
From: "Robert J. Berger" <rberger () ibd com>
Date: Fri, 20 Sep 2002 14:54:35 -0700
To: Dave Farber IP <dave () farber net>, Dewayne Hendricks
<dewayne () warpspeed com>
Subject: NYTimes: This is the way the recovery ends -- not with a bang but
with a whimper.

http://www.nytimes.com/2002/09/20/opinion/20KRUG.html
The Vision Thing

By Paul Krugman
New York Times | Opinion

Friday, 20 September, 2002

This is the way the recovery ends -- not with a bang but with a whimper.

O.K., I could be wrong. Industrial production is falling and layoffs are
rising. But it's still not a sure thing that the months ahead will be bad
enough for the business-cycle referees to declare a renewed recession. And
on the other hand, the administration seems determined to have a bang
sometime before Nov. 5.

But right now it looks as if the economy is stalling, and also as if the
people in charge have no idea what to do. In short, it's feeling a lot like
the early 1990's.

It doesn't really matter whether you call what's going on right now a slow
recovery or a recession. Most people don't care whether G.D.P. growth is
slightly above or below zero; what matters to them is whether they can find
jobs and keep them. And the job situation is increasingly dismal. A 5.7
percent unemployment rate doesn't sound that bad, but an unusually large
number of workers have given up searching for jobs. The overall unemployment
rate also doesn't reflect the rapidly growing number of people who are truly
desperate, because they have been out of work for six months or more. And
the employment situation has lately taken a significant turn for the worse:
the number of people filing new claims for unemployment insurance, a leading
indicator of future unemployment, has increased sharply over the past month.

At best, then, this is a recovery that, as far as workers are concerned,
might as well be a continuing recession. The Center on Budget and Policy
Priorities points out that in terms of job losses and long-term
unemployment, the current slowdown is already a match for the nasty
recession of the early 1990's.

So this really is like the early 1990's all over again. The economic
similarity between our current difficulties and the slump under the first
George Bush is stronger than most people realize. In 1990, as in 2001, the
economy went into a recession in part because of past excesses -- though
those quaint old scandals involving junk bonds and real estate speculation
seem very tame in the age of Enron and Tyco. In the early 1990's, as today,
recession was followed by a "jobless recovery," in which G.D.P. grew but
employment didn't. And then as now there was concern that interest rate cuts
by the Fed might not be enough to turn the economy around -- though back
then we didn't yet have the example of Japan to show that the "liquidity
trap," in which even a zero interest rate isn't enough to produce an
economic recovery, was a real possibility in the modern world.

But the most striking similarity between now and a decade ago, it seems to
me, is political. For all the differences between the moderate father and
the deeply conservative son, now as then we have an administration whose key
figures are fundamentally uninterested in and uncomfortable with economic
policy.

That statement may strike you as strange: wasn't the tax cut George W.
Bush's central achievement before Osama bin Laden came along? But the tax
cut was never intended as an economic policy: it was a political gesture
designed to ward off a challenge from Steve Forbes and satisfy the
conservative base. Only later did the administration make the providential
discovery that it was also just the thing to fight recession, promote family
values and cure the common cold.

And it can't seem to come up with anything else, now that the tax cut that
wasn't designed to fight a recession has, sure enough, failed to fight a
recession. When Treasury Secretary Paul O'Neill was asked for new ideas that
came out of the comical Waco summit, his answer was -- are you ready? --
making the tax cut permanent.

Should we be worried about the administration's lack of the vision thing
when it comes to economics? Yes, we should. The excesses of the 1990's
dwarfed those of the 1980's, and the economic risks are correspondingly
larger. Suppose that, as seems increasingly plausible, the deteriorating job
situation finally undermines the dogged optimism of America's consumers. In
that case we'll need some decisive action -- action determined by what the
economy needs, not by what Karl Rove thinks will play in the polls. How much
chance is there that we'll get it?
-- 
Robert J. Berger - Internet Bandwidth Development, LLC.
15550 Wildcat Ridge Saratoga, CA 95070
408-882-4755 Fax: 408-490-2868 rberger () ibd com http://www.ibd.com


------ End of Forwarded Message

-------------------------------------
You are subscribed as interesting-people () lists elistx com
Archives at: http://www.interesting-people.org/archives/interesting-people/