The Vision Thing
The New York Times
"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"
September 20, 2002
By PAUL KRUGMAN
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?
nytimes.com
Copyright 2002 The New York Times |
