Is the nation heading into recession? Has the recession already started? Have the newspapers and TV been blabbing so much about economic weakness that they are creating a self-fulfilling prophecy?
The last question is an old one that often pops up in that indecisive period when an economy begins, perceptibly, to weaken. And it's important to respond to it on each new occasion. There always has been, for as long as I can remember in my reporting career, a certain element at the very top in the business world that believes the media ought deliberately to serve up a more optimistic appraisal, like sportscasters rooting for the home team.
The notion that a weak economy would look better or recover more quickly if only the news media soft-pedaled the bad news makes no sense. The essential function of a free press is to tell it like it is and to keep the pressure on government and business leaders to do the same. In fact, the nation won't be able to tackle an incipient recession until the Bush administration and Congress begin acknowledging that a problem exists.
Speculation about a possible recession began well before the Iraqi invasion of Kuwait in early August. There was ample reason for concern: Consumer spending had taken a conspicuous tumble after mid-year; the savings and loan crisis was helping to deflate the real-estate market; banks -- especially in the Northeast -- showed great weakness. Then, on top of that, oil prices soared after the invasion of Kuwait.
In September, sales of existing homes were down 8 percent because families wondered whether there would be war in the Persian Gulf. In such times, consumers go slow in making big-ticket purchases. For some time now, initial unemployment-insurance claims -- a key future indicator -- have been rising.
Undergirding the crisis was the presence of a huge budget deficit that Congress and the president seemed unable to confront, adding to the Federal Reserve System's policy dilemma.
All of these stressful symptoms have been reflected in a 500-600 point slide in the Dow Jones industrial average and exacerbated by financial weaknesses in the stock market and real estate in Japan that hold out the possibility that Japanese investors will pull some of their money out of the United States. That could drive U.S. interest rates higher at the precise time that lower interest rates were needed to jump-start the economy.
Failure of the news media to deal with such dynamic economic events would be irresponsible and unthinkable. Businessmen as well as consumers responded nervously to these events, not to the reporting of them. If General Motors Corp. or Wall Street brokerage houses or newspaper chains fire employees, they, their families and their friends know about it immediately.
And if you walk into a department store plastered with genuine "Sale" signs but could drive a truck through the empty aisles, you don't need the newspapers and TV stations to tell you that business is lousy.
It's never easy, until after the fact, to pinpoint the exact onset of recession. The most convenient definition of recession is a shorthand measure originated by the late Arthur M. Okun: two consecutive quarters when the total gross national product, after adjustment for inflation, actually declines.
The last official, preliminary GNP report showed growth. That is, there was a 1.8 percent gain, after inflation, in the total value of all of the nation's goods and services, as reported by the Department of Commerce for the three months ended in September. That report means recession had not yet started by the end of September (unless there are revisions later).
As higher oil prices begin to work through the economy, cutting consumer income available for other purchases, there could be one or more quarters conforming to the Okun definition. But the technical definition of recession makes little difference once a sick economy begins to flirt with no growth.
Plus or minus 1 percent real growth in the United States represents real trouble, with more people coming into the labor market than are getting jobs, adding to unemployment rolls, or the absence of jobs simply killing the incentive to go job-hunting, concealing real jobless levels. That's apparently what happened in October, when there was a 69,000 loss of jobs, with the unemployment percentage staying unchanged at 5.7 percent.
But what isn't justified, at least right now, are flat predictions that this downturn will turn out to be a deep, long-lasting bust. That's possible, to be sure. However, a recession could be short and mild, especially if the Persian Gulf crisis ends without hostilities, or if a war is quickly won by the United States and its friends. Oil prices should come down rapidly in that situation.
There would still be the problems of the S&Ls, a fragile financial structure, heavy corporate debt and an oppressive federal deficit. But a successful end to Saddam Hussein and the threat of high oil prices would provide a welcome tonic and an opportunity to deal with the serious problems at home.