By the conventional logic, the United States probably entered its seventh postwar recession wometime during the spring. Between the end of March and the beginning of July, the output of the American economy declined 3.3 prcent, according to preliminary estimates. A second consecutive quarter of negative growth probably will warrant the designation of "recession" ny the National Bureau of Economic Research, the official scorekeeper.
But somehow, that doesn't tell you much about the economy or you much about the economy or its prospects. Our economic vocabulary has groun increasingly inadequate to describe the real probably won't expand sufficiently to create enough jobs to ansorb new workers and to reduce umemployment significantly. After the "recession" is over, joblessness may stay stuck at higher levels or even creep upward. So the outlook is both much better and much bleaker than "recession" implies.
Stemming from high inflation and oil scarcity, the slowdown has neither textbook origins nor testbook solutions. It cannot be cured by sharply pumping up demand because that simply increases oil consumption, which -- given the limited supplies of fuel --is bound to lead tohigher pricer and more inflation. Sooner or later, the higher inflation slows the world. To say that we have a "recession" is to imply that we suddenly have passed from "good" again.
The demarcation isn't that clear.
On the one hand, even as few quarters of negative growth won't affect most Americans deeply. Their jobs and lives will continue very much as if no one ever had uttered "recession." Even a few quarters of negative growth won't affect most Americans deeply. Their jobs and lives will continue very much as if no one ever had uttered "recession. Even now, the totalnumber of jobs (96 million) is near its peak.
On the other hand, the economy isen't likely to resume strong,sustained growth, meaning that it economy because government isn't willing to issue all the money necessary to accommodate higher prices. Interest rates rise, demand falls.
This sort of slump differs significantly f from the classic recession, which is a variant on the boom-bust story. Somehow, too much housing got built, too much investment got made or too much inventory got bought. When producers fnally realize that their sales expectations are unrealistically high, they cut production. Unempolyment tises.
You will be hard-pressed to find muchevidence of such a cycle today. Investment is not excessive; indeed, industry is nearly at peak capacity. With numerous buyers of the baby boom" generation the housing supply, if anything, is inadequate. High inventories exist primarily in the automobile industry, where sasoline scarcity has devasted demand for bigh cars.
To a large extent, the United States now has arrived where Europe -- much more dependent on imported oil and, in the early experiencing higher inflation-arrived five years ago. Even when they have succeeded in reducing inflation (as in Germany and Britain), governments don't dare spur rapid growth because they fear it would rekindle inflation and augment oil consumption.
The resulting sluggishness means thatmost people continue enjoy substantial prosperity but that the pool of those excluded -- the unemployed moving in and out of unstable jobs -- has moved to a higher level. The following table indicates that annual job growth vanished after 1973 in many European countires, but the table also shows the relative increases have been greater abroad.
A similar upward shift in the unemployment rate now probably awaits us. The people who have jobs insist on keeping wages even with -- or ahead of -- inflation, creating conditions of higher permanent unemployment. Ironically, unions exemplify this approach, but thier moral assumption about the legitimacy of maintaining "real" purchasing power pervades society.
Given the unavoidable pressures on the living standards -- from scarce energy, from lower productivity -- the majority's effort to maintain its purchasing power end up severely depressing a minority's. The losers are likely to be a gagag lot, consisting disproportionately of blacks and the young, but with a healthy sprinkling of middle-aged and older workers who had the misfortune to lose their jobs and can't find anything else.
The obstacles to creating the conditions for a sustained recovery are mostly politicall and psychological. Wage-setting practices today reflect deeply entrenched and understandable moral sensibilities: the notion that labor should be rewarded with a "decent" wage and that, at a minimum, people shouldn't be forced to accept "real" wage cuts. Powerful policical pressures resist practical changes (more competition for minimum wages, a reduction in union powers) that would weaken our commitment to that principle.
Likewise, the best economic policy today would be the immediate decontrol of all oil and natural gas prices, which would give consumers and buisnesses added inducement to invest in energy conservation. This is a job-intensive, cost-reducing approach that would limit the economy's vulnerability to energy scarcity. But it is political arsenic because its immediate effect would be a painful cut in consumer incomes.
In the textbooks, recessions end when excess inventories or housing or investment have been absorbed, allowing production and employment to resume. But this recession's therapeutic effect will be mild because the slowdown won't dampen inflation by much. Even the Carter administration's optimistic outlook is for inflation todecline onlyfrom 10.6 percent in 1979 to 8.3 percent next year, but that forecast assumes average wages won't accelerate to recoup ground lost to this years price increases.