The Social Political Change of 2002+ Recession
vny.com
The Bear's Lair: Psychology of recession
By MARTIN HUTCHINSON, UPI Business & Economics Editor
WASHINGTON, July 16 (UPI) -- Today's political climate is heavily
influenced by the long economic boom of 1982-2000 that culminated in the
asset price explosion of the past few years. Business transactions, the
capital and labor markets and political attitudes have all been heavily
influenced by the boom, and will be very different once it is realized that
the long decades of easy money expansion are finally over.
I am not here assuming a huge 1930s-type slump. While I think it more
likely than not that we are in for the worst downturn since the 1930s, far
worse than the recession of 1990-92, and worse than the cluster of
recessions in the 1970s, it is not necessary for this to happen for markets
and attitudes to change markedly. The psychological and political changes
brought about by recession, however, may themselves exacerbate it.
Assume initially, a normal "vanilla" recession: two quarters of negative
growth in gross domestic product, but no more, with a normal stock market
downturn. But assume also that the downturn extends beyond the ghetto of the
tech sector to include, say, a further 20 percent to 25 percent drop in the
Dow stocks, which are still only 10 percent below their impossibly elevated
all-time high.
Then examine what the economy and the political economy might look like
in, say, July 2003, two years from now, after the midterm elections, but
before the next presidential election campaign has really got going.
Political and social attitudes change between an economic upswing and a
downswing because the circumstances producing those attitudes change. In the
1920s businessmen were generally idolized, regarded as the producers of
abundance; 10 years later, as hardship had succeeded abundance, the popular
view was reversed. Likewise, during the 1950s and 1960s, increases in living
standards obtained by powerful trade unions were regarded as a harmless
democratization of U.S. wealth; 10 years later, after the layoffs of
1973-75, the country was ready to elect Ronald Reagan on an anti-union
platform.
The reaction to economic downturn also depends on what came before it.
Here, the omens are not good. The 1990s, with their ever-escalating stock
options and tales of youthful billionaires, were much more like the
economically divided 1920s than they were like the "blue-collar nirvana" of
the 1950s and 1960s.
Statistically, this can be shown by examining the "GINI coefficient," a
measure of inequality available for U.S. families from 1947 for which a
coefficient of zero represents perfect equality and 1 a situation where one
person owns everything.
During the early post-war period, the coefficient declined, from 0.376 in
1947 to a bottom of 0.348 in 1968, the year of maximum equality in the U.S.
economy. Since that date, it has steadily increased, through Republican and
Democratic administrations, passing its 1947 level in 1982 and rising in
1999 to 0.428, the 1968-1999 upswing being nearly three times the size of
the 1947-68 downswing.
While figures for 1929 are not available, and anecdotally, inequality was
considerably higher in 1929 than in 1947, it seems likely that 1929's GINI,
if it were calculated, would not be much if at all higher than 1999's.
In short, therefore, the political changes of a 2001-2003 recession are
more likely to resemble those of the 1930s, in the direction of greater
government control, than those of the 1970s, in the direction of greater
economic freedom, because, for the American people, 1999 was more like 1929
than it was like 1969.
In terms of government control, therefore, 2003's attitudes are likely to
be considerably to the left of 2001's. In this scenario, the Democrats are
likely to keep the Senate and gain the House in 2002, albeit not by a
landslide unless the recession is steep.
The Democratic argument ........http://www.vny.com/cf/News/upidetail.cfm?QID=2030 |
