Ayear ago, the recession imagery was all to the effect that the economic downturn would be brief and shallow. "A sharp dive," one account read, "from which the economy will arrange a quick ascent." When the recovery did not come, one read that the economy was now "consolidating its position for the improvement."
Recently, I have encountered the "chamber-pot theory." The recession has manifested itself in a steep downside, a very flat bottom and soon, on encountering the opposite side of the pot, will show an equally steep recovery. Any curvature in the walls of the pot is evidently unimportant.
In all this, one central idea is foremost. The economic system has within itself a personified power for recovery. This is firmly stated: "The economy is now wrestling with the final stages of recession." Or, as more recently, "The economy is now contending with a temporary roadblock in its path to recovery."
Last week's report of an uptick in quarterly gross national product signifies little, since growth dramatically slowed at quarter's end. Assurances that a recovery is breaking out are mostly confined to George Bush and his apologists.
The time has come for an end to this nonsense. The present recession is not an autonomous, self-correcting economic drama. It is the wholly predictable response to the speculative extravagances and insanities--and specific government policies--of the 1980s.
As the Great--and enduring--Depression of the 1930s was the response to the speculation of the previous decade, which ended in the Crash of 1929, so, though perhaps less dramatically, now. We are paying for the mergers-and-acquisitions mania that left roughly one-third of our large corporations with a heavy, sometimes crucifying, burden of debt. We are experiencing the consequences of an extreme and often mindless speculation in urban real estate. And of the junk-bond miasma. And of legislative and regulative measures that, in effect, put government funds--guaranteed bank and savings-and-loan deposits--at the disposal of some of the most fiscally extravagant, and felonious, entrepreneurs since John Law and the South Sea Bubble.
There is, with time, a corrective process. Nothing more deeply characterizes the financial mind than its ability to forget the last aberration and move insouciantly to the next. Meanwhile, inventories are exhausted; cars, clothing and gadgetry wear out and are replaced.
But there are also, in the shorter run, strongly cumulative factors at work, proceeding from the recession itself, to deepen and continue recession. Those who find themselves scorched by junk bonds do not invest any money they happen to have left--or spend it, either. The inevitable S&L; liquidations depress real-estate markets and restrain new construction. Banks struggling with a portfolio of bad loans are naturally and continuously cautious about new lending.
Bush, on his recent, brief return to domestic issues, attributed the current caution in bank lending to the "chilling" intervention of the regulators. Government, as ever, at fault.
This is not why banks have been made cautious. The President should be better briefed--or stay with foreign policy.
Finally, as states, cities and other local governments feel the pinch of falling revenues, they cut services and discharge employees, all amid much public discussion. Thus, they also cooperate in a meaningful way in making the recession longer and worse.
The hard fact of this recession, or any recession, is that no one knows when it will end. Those who so predict divide between those who do not know and those who do not know they do not know. What is clear is that the hard times are the source of a great deal of suffering and despair. That this despair is unevenly distributed and but slightly felt in Washington should not lead us to take it casually. At a minimum, we should ask what can be done, and, in decency, what should be done, to limit the distress. The required action is less than subtle.
Those who are without jobs in a rich country should not be left without income. This should not come only by resorting to the welfare lines and its personal indignities. Unemployment compensation should be available for as long as the recession endures. The recession should not be made worse by the ending of such compensation. This also would give effective support to the purchasing power and the consumer expenditure not only for those experiencing unemployment but those who live in fear of it and who have reduced their family spending accordingly.
Second, we should take note of the special spiral of depression and despair in the construction industry and use some of the idle labor and equipment there for greatly needed public works and improvements--for highways, bridges, airports, mass transportation, school buildings, what in the more formidable language of the day is called the infrastructure.
Further, let there be a federal fund of ample size for help to distressed states and localities--for loans and grants that will lessen suffering and keep them from making the recession both more painful and worse.
The more compulsively orthodox will say that surely this will add more and dangerously to the deficit. In the 1980s, it would have been right to mention the deficit; then, in the expansive and speculative mood of the day, the deficit was large, unneeded and damaging.
But this is now a different world; we must accommodate to the current reality. It calls for affirmative fiscal support to the economy. If we can borrow to bail out bank depositors, we can borrow to bail out deprived and desperate workers and their families. But if there are still misgivings, let there be a special bond issue for the unemployed and for the afflicted states and localities, with the interest covered by a well-considered levy on the more affluent. We can now safely abandon the basic doctrine of the 1980s, namely that the rich were not working because they had too little money, the poor because they had too much, or its variant--if the horse be fed enough oats, some will pass through to the road for the sparrows. The expansive effect of the current spending from the bond issue would far outweigh the restraining effect of the taxes to cover the continuing carrying charges.
There is another opportunity--the military budget. Instead of the B-2, the Strategic Defense Initiative and other exotica, use the money for greatly needed civilian employment on urgent civilian needs. I do not doubt the formidable power of our military bureaucracy and its captive industries, consultants and statesmen. Let it now be shown that this power is not total.
The frenzy over cutting taxes is just wrong-headed, because any reductions would mostly amount to more rewards for the affluent. It also distracts us from more important tasks, like rebuilding the infrastructure. The latter, far more than less taxes, would revive the construction industry.
Why do I come so slowly to a final step--a stronger central bank policy and lower interest rates? This I certainly favor and urge. But I would also urge against undue optimism as to either possibility or effect. The Federal Reserve lives on close, even affectionate, terms with the banking community. It is not, as usually supposed, socially and economically neutral. Those with whom it so associates, as do all with something to sell, like a good price for their product.
Accordingly, interest rates do not come down quickly or easily. And, in any case, we should not be surprised if the effect is slight. Federal Reserve policy is partly a design for proving to the innocent and the intellectually vulnerable, including the press, that something is being done. And interest-rate reduction is not reliably effective. Interest rates do work against inflation; then, you are pulling on the string. Against recession, you are shoving on the string.
In our history, those favored by power and position have frequently opposed the steps by which they and the system might be saved. Those of us, a diminishing band, whose memory goes back to the New Deal remember the ferocity with which the mellowing reforms of that time were resisted. These reforms, we now agree--Social Security, farm-price supports, public-works employment, financial legislation, support to unions--mitigated the cruelties of capitalism and did much to save the system. So it could be now with the action so obviously needed to limit the worry and suffering from the current economic distress.