The United States has had 44 of them in 200 years, and what will happen to the current one is a mystery to many economists.
It is the business cycle, that recurring pattern of recession -- recovery -- expansion -- recession that has become the center of debate among economists.
Some economists see imbalances in the economy that they expect will lead to a recession in a year or two. They are challenged by supply side economists and President Reagan's economic advisers, who maintain that the economy has undergone fundamental changes that will prevent a recession for the next six or seven years.
Still other economists say that there has been no underlying change; it is just that the multitude of positive elements in the economy, such as moderate inflation and low business inventories, have overwhelmed such negatives as the continuing $200 billion federal budget deficit and high real interest rates.
The current recovery, which began in November 1983, was supposed to be cut short by a recession in 1984, according to many economists. Then they said it would end this year.
Now, many economists -- not just those in the administration -- are saying that there is no end to recovery in sight. The administration maintains that there is no reason the expansion cannot last for another six or seven years if government policies are followed and the federal budget deficit is reduced sufficiently. Such a recovery would match the record postwar expansion between 1961 and 1969.
The length and strength of the business cycle not only affects the level of output, unemployment and incomes but also will have a major effect on the size of the federal budget deficit. The Reagan administration's hopes for substantial reductions in the budget deficit depend on avoiding a recession between now and 1990.
"Many of those who predict another recession starting this year or next seem to do so from the view that a business expansion has a natural life, after which the economy will inevitably turn down," said the economic report of the president issued last month. "This view is probably wrong. If business expansions die of old age, the probability that a recession will begin rises as the expansion ages. In fact, the evidence suggests that the probability of the onset of a recession is only weakly related to the age of the expansion."
"There's no reason to believe we can't continue an expansion" as long as the one that lasted from 1961 to 1969, said Manuel H. Johnson, assistant Treasury secretary for economic policy. "We don't see any reason on the horizon why there should be a downturn." The only threat is the unpredictable possibility of an external economic shock such as an oil crisis, Johnson added.
Since the end of World War II, the principal reason for recessions has been a tightening of both monetary and fiscal policy, as government authorities slammed on the breaks to control rising inflation.
That could happen again. Or a recession could be triggered by the high federal budget deficits, which would lead to high interest rates, a reduction in spending and, subsequently, a decline in business output.
Finally, there is a new recession scenario arising from the unprecedented flood of imports entering the country. The risk is that the success of imports will slow the sales of competing U.S.-made products, leading to a buildup of domestic inventories followed by cutbacks in production and output.
It has been difficult to say exactly what caused past recessions, but economists have provided some clues to those that have occurred since World War II. The recession of 1948-1949 was attributed to high interest rates and the end of a spending surge by consumers that was triggered by the removal of wartime rationing controls.
The next recession, in 1953 and 1954, was because of tight fiscal and monetary policies and a military builddown following the Korean War. The recession of 1957 and 1958 was attributed again to a rise in interest rates and the subsequent tightening of monetary policy.
The recession of 1959-1960 was caused by tight monetary policy intended to slow slightly accelerating inflation. The economy had only a slight pause in its expansion in the intervening years until the recession of 1969-1970 hit, caused by tight monetary policy intended to cool inflation brought on by Vietnam war spending.
Outside shocks were largely to blame for the recession of 1974-1975, when the first oil embargo occurred. Energy prices increased some 400 percent, and monetary and fiscal policy became tighter. In addition, a speculative overbuilding of inventories in 1973 exacerbated the economic situation, economists said.
The second oil crisis led to the short recession in 1980, with a tightening of monetary policy and the Carter credit control program of March 1980 as contributing factors.
The most recent recession of 1981-1982 was caused by reverberations from the second oil shock, restrictive monetary policy to reduce rampant inflation and high interest rates.
The usual symptoms of an oncoming recession -- spiraling inflation, high interest rates, an overstocking of inventories and credit crunches -- are not evident now, economists say.
The progress in reducing inflation has been dramatic, for a variety of reasons. The Organization of Petroleum Exporting Countries, which caused the oil shocks of the 1970s, is in disarray as energy demand and energy prices have weakened. A huge surge of imports has provided low-cost goods for consumers and helped hold down wages and prices in companies that compete with imports.
In addition, since the last severe recession, many businesses have been more cautious about overbuilding their inventories.
Does this mean that the expansion can go on forever?
"That view would reflect a kind of fine tuning that's never been possible in our economic history," said Allen Sinai, chief economist for Shearson Lehman Brothers. The expansion from 1961 through 1969 "did not have the policy imbalances that now exist," Sinai said. "Both monetary and fiscal policies have been destabilizing."
During that long expansion, the Fed pursued a relatively easy monetary policy, and major tax cuts in 1964 and 1965 kept the expansion going, Sinai said. The fiscal push of the Vietnam war beginning in 1966 also sustained the expansion, he said.
Geoffrey Moore, perhaps the dean of business cycle research, said there probably always will be upturns and downturns in an economy, but that since the 1930s, various government policies have prevented many recessions from being as severe or as lengthy as they otherwise might have been.
"We have a chronology of business cycles down to 1790, and there have been some 44 business cycles in that period. And it seems very unlikely since we weren't able to abolish them in the last 200 years that we can abolish them in the next four or five," said Moore, director of the Center for International Business Cycle Research in New York. "There are some things in the cycle you can't do anything about," such as an oil shock or drought, he noted.
With the advent of unemployment insurance, which provides incomes for the jobless during recessions, and with provisions to prevent runs on banks, expansions generally have been longer and recessions shorter than before the Great Depression, Moore said. Government benefit programs provide a cushion during recessions, making it easier for recoveries to get started and to last, he said.
"The few people who have tried to figure out what makes one expansion last longer than another one, they can't account for that," Moore said. "Arthur Burns the chairman of the Federal Reserve Board during the 1974-1975 recession knew everything there is to know about the business cycle, and he wasn't able to control it."
The current expansion has lasted as long as it has because of the stimulus to the economy from massive government spending, because of the continuing boosts that consumer spending has received from the multiyear tax cuts enacted in 1981, and because of a looser monetary policy by the Federal Reserve during the latter half of last year.
The severity of the 1982-1983 recession also has contributed, because the deeper the downturn, the stronger the recovery tends to be, when pent-up demand by consumers finally is unleashed, some economists said.
The current expansion appeared to have ended last summer when interest rates rose rapidly, Moore said. However, as a result of the easing of monetary policy, interest rates declined and the expansion rebounded, he added.
Sinai said the pause in domestic output last summer is explained by the massive trade deficit -- which will trigger the next recession, in his opinion.
Sinai predicted that an increasing share of the demand for goods will be satisfied by imports; that means inventories will accumulate domestically and output will be cut back, he said. "It will be the first time in history to have this kind of recession-motivating force," Sinai said.
The United States suffered a record trade deficit last year, and economists already say that this year's may top the last one.
"The next recession is most likely to occur because of the growing imbalance between the domestic and international economic performance," said Jerry Jasinowski, chief economist for the National Association of Manufacturers.
If Sinai is right, a persistently strong dollar paves the way for imports, leading to a recession. But Jasinowski and other economists also say a dramatic fall in the value of the dollar could have the same effect, causing a speed-up in inflation as the prices of imports rose. That, in turn, would lead to increased tightening by the Federal Reserve Board and higher interest rates, which could cut the recovery short.
But it needn't happen that way, according to some economists who support the administration's logic.
"There is a sort of prevailing notion that on closer inspection amounts to almost folklore, that there is a natural cycle in recoveries where they peter out, become increasingly weak and end eventually," said Ronald Utt, deputy chief economist for the U.S. Chamber of Commerce, a group that is bullish on prospects for a long expansion.
So many aspects of the economy are favorable now that Utt sees no imminent threat of a recession. "I think we can look back to another lengthy recovery -- namely, in the mid-1960s -- and draw some parallels that would allow us to look forward to at least three more years of strong economic growth," he said.