Warning lights are flashing today for citizens trying to plan their financial futures.
Most economists think that business will grow at a slower rate for at least another year before a new recession hits. (On average, postwar recoveries have lasted three years and this one is nearly two years old.) But there are bears in the woods who think the recovery is all over but the shouting. Taking precautions, consumers have been saving more and spending less.
When the administration fed its supply-side theory into the computers four years ago, the printouts promised no recession and a balanced budget in 1984. Somewhere, something went a little wrong.
Having suffered the worst recession since the 1930s, business has since enjoyed the strongest recovery, driven by the familiar tools of easy money, tax cuts and an elephant of deficit spending. But the supply-side faith remains unproved. What saved the day looks more like old-fashioned, Keynesian pump-priming.
President Reagan's post-1982 success has thrown the Democrats into confusion, depriving them of what has always been their strongest issue: economic growth.
The Democrats used to ride the stimulus of government spending while the Republicans, wringing their hands over government deficits, lost. This year the parties' positions have been reversed, and so may be the election results. And where the Democrats used to tax and tax and spend and spend, the Republicans found a better way. They borrow and borrow and spend and spend, so that government seems to have no price at all.
Reagan is back this year with the same, failed argument that the deficit -- now big enough to block the sun -- will fade away, or, if it doesn't, it's Congress' fault.
Congress did indeed turn down some cuts the president wanted in social programs, but it compensated by trimming his defense requests -- so the spending totals came in pretty close to what the president asked.
For some, the recovery never arrived. The overall unemployment rate, which climbed to postwar records during the recession, is no lower now than when Reagan entered office. Unemployment for teen-agers and blacks is higher than it was four years ago.
The number of Americans living in poverty, adjusted for government benefits, fell from 1965, when the War on Poverty began, until 1980; then started to climb again, as inflation wore away the value of the subsidies. Reagan's subsequent bombing run on social programs caused the poverty level -- for the first time in 20 years -- to rise even during an economic recovery.
Middle-income groups just barely held their own in these Reagan years. An Urban Institute study found that while real disposable incomes for the bottom fifth of the population (average income: now $6,400) fell 7.6 percent from 1980 to 1984, the middle fifth (earning $19,000) gained 1 percent while the lucky top fifth ($41,000) gained 8.7 percent.
For investors, much depends on how long the next recession will hold off. Pessimists should be locking up three-to-five year bonds, Treasuries, certificates of deposit and bond mutual funds, because a sinking economy will bring stocks and interest rates down.
If the optimists are right, stocks could have a narrow run, with the focus on the diminishing number of companies still showing profit-margin gains. But bulls who read history might forbear. In the postwar period, only three times has a good market year followed a presidential election (after Truman, Johnson and Kennedy); every Republican winner brought the market down for the year.
And what can be said about the deficit that anyone will listen to? Interest payments arising from this year's new debt alone cost around $20 billion -- more than the cost of the entire Aid for Dependent Children program (which is basic welfare) plus Supplemental Security Income (for the destitute elderly and disabled) plus half of all the housing aid.
Neither Congress nor the administration seems capable of cutting spending each year by enough to accommodate the rising interest on the national debt, let alone by enough to bring the deficit significantly down. On supply-side economics, the country may have rolled the dice and lost.