Oh, What a Lovely Recession!
WEINTRAUB, SIDNEY
WELL, NOT REALLY Oh, What a Lovely ^Recession! bt^dneyweintraub G. WILLIAM MILLER Some will recall the musical Oh, What a Lovely War! replete with scenes of Field Marshall Sir Douglas Haig...
...Having carried us down the roller-coaster, these two bellwether industries can lead the way up again...
...Although this catastrophe was eagerly induced, there is some shock that it is cutting deeper and wider than expected...
...The big example is the putting out and pulling in of the welcome mat for recession...
...Nobody in the White House wanted a skid that might upset the President's re-election bid...
...inflation, and policy procrastination, are still too much with us...
...But the prime interest rate, after touching 20 per cent in April, has tumbled to 13 per cent...
...At the Fed, his usual testimony was that the high interest rate policies he was fostering would not do much damage to jobs or production, but would fight inflation...
...On inflation there has been some unseemly haste to take comfort in the slight deceleration in consumer prices...
...The attitude was a mite casual, too, about the loss of other people's??not his??jobs...
...Elements of whimsy, or tragicomedy, abound in our political economy...
...Incredibly, this was before the 13.3 per cent 1979 consumer price rise...
...Moreover, sadly, the only serious defense of monetary policy is (1) the belief that if it is practiced on a scale short of creating a Great Depression, it will work??shown to be conspicuously false over the last 12 years...
...Just about two months earlier, the Secretary had prevailed upon the President to adopt the curbs on consumer credit cards...
...After Miller moved to the Treasury, the same policies were pursued even more adamantly by his replacement, Paul Volcker??another man whose professed mission is to subdue inflation, of course with minimal suffering in lost jobs...
...Its concern, they plead, is the supply of money, not jobs...
...But events are likely to prevent any quick change from Jimmy Hoover to F. D. Carter...
...Recession sounds came in late 1978 from G. William Miller, currently Secretary of the Treasury and then Chairman of the Federal Reserve...
...Conversely, should there be any new defiant military gestures by the Soviets, the candidates will vie with one another for instant military spending binges...
...Over time??and undoubtedly interrupted by some reflexive backing and filling by the Fed people in their interminable and lost inflation war??the money release measures should mitigate, and finally reverse, the ongoing slump...
...Technically, this is the doleful "Phillips curve" rationale of recession and unemployment as an inflation retardant...
...Unfortunately, our inflation madness has not ended, even if political judgment construes recession as a handier, and more pliant foe...
...it is hokum to pretend otherwise...
...The auto industry, too, will rebound once it stops wallowing in its tears of self-pity over imports and starts producing cars attuned to gasoline price realities...
...The Carter Administration is in nearly the same position now that its much-heralded recession has finally hit us...
...Presumably, when the Fed slows up the money augmentation there is less of the stuff for the purchase of goods...
...Consequently, the greater danger is that we will be chronically nibbled by persistent price increases, with the time pattern enabling the President to maintain his obsessive funereal opposition to serious price policies...
...The doctrine may have some validity where money or credit is extended to permit people to buy gold or equities or commodities on speculative markets...
...The Carter people seem prone to confusing fact and fiction, as in their portraying the Iran rescue fiasco a triumph...
...That was in the dramatic March 14 illusory budget-cutting address, where the President was a well-rehearsed, stem anti-inflation, come recession, warrior...
...If things really fall apart, we will get a quick tax fix and a big spending splurge...
...Executed on a large scale, and through a multiplier chain running from houses and, say, automobiles out to other sectors, the job devastation will culminate in a recession such as our current and foreshadowed mess...
...Sidney Weintraub, a regular NL contributor, is professor of economics at the University of Pennsylvania...
...These activities have their chief impact on the amount of labor hired or the quantity of goods bought, with little or no wage or price perturbation...
...Suddenly, the urgency attached to the balanced budget is diminished...
...To cut through the verbal junket, the hoary view exists that money supplies work directly on prices...
...When money or credit is dried up by the Fed, there are layoffs in producing firms as goods move more slowly in the market...
...In addition, the Federal Reserve has dropped its rediscount rate and removed some restrictive provisions inhibiting bank loans...
...All one can say with certainty is that there is stagflation in our future: Full employment and a stable price level will continue to elude us so long as we pursue current or prospective policies...
...the art endures in high economic quarters...
...A lesser instance is the spectacle of the Treasury Secretary appearing on TV non-news shows and "inviting" us to use our credit cards "normally"??despite our most abnormal inflationary recession, unmatched on the price front by any other recession...
...We can guess that the Fed will bend in its money actions, but it will not rush pell-mell to switch its bordered course...
...It throws out of work the least adaptable members of our economy, those living on weekly earnings, before spreading to other income echelons in a 'trickle-up' path...
...Similarly, a slow job erosion will facilitate a pose as defender of "fiscal integrity," and delay a tax cut until a chorus of protests counsels a revised stance...
...this is indeed a precipitate 30 per cent decline in a brief period...
...there seems always a desire to have an outcome other than the one that has been so laboriously achieved...
...All Fed Chairmen are adept, maybe schooled, in beguiling audiences with an arcane doctrine that if unemployment develops, the Fed is automatically absolved of blame...
...and (2) our failure to consider, much less devise, a feasible Incomes Policy??an omission that permits the Fed to strut a heroic role while not protecting us at all from the price follies...
...Nonetheless, many of us persist in seeing recessions as manufactured not in heaven but at the Fed...
...A candid answer must be vague and conjectural...
...How deep a recession, then...
...Given a recession of any severity, budget facts are likely to bear only a tenuous relation to the pieties uttered in recent weeks...
...The Federal Reserve's reasoning also holds that as the unemployed army grows, labor will more readily settle for lower pay boosts at bargaining time, thereby containing unit labor costs and ultimately producing a slow-up in the price-level progression...
...Housing starts will begin to creep up with mortgage money available on slightly better terms...
...Stripped of its expository subterfuges, which often seem to convey intimations of benign??divine???purpose, monetary policy is an archaic, devious, cruel, sadistic way of fighting inflation...
...When will the turnaround come...
...The usual monetary and fiscal medicines will only allow the economy to climb back on the slow-growth inflationary path...
...Mostly, however, businesses borrow from banks either to hire labor for their production processes or to acquire materials from selling firms, usually at already established money wages or market prices...
...The present recession is merely the latest link in a chain thai promises to forge many more loops...
...Interestingly, with its recession "success" being superseded by election jitters, the Carter crew appears primed to shift course from its weird retreats in its presumed inflation war to a politically inspired attack to restore jobs...
...replete with scenes of Field Marshall Sir Douglas Haig beseeching God, in the manner of General MacArthur, to follow his??Haig's??battlefield commands...
...In their recondite ratiocinations money supplies live the life of a recluse and are unrelated, say, in the present context, to the fact that housing starts are down by about 50 per cent or that auto output has slumped by 30 per cent so far this year...
...Our systemic reactions are better geared to coping with big disasters than to flicking off smaller troubles...
...The late Senator Paul Douglas once spoke of words being used to conceal thoughts...
...There is no mechanical model capable of capturing the precise evolving scenario...
...It is this cardinal fact concerning the Fed??to wit, that it will only stoke the money fires gingerly??together with the lack of a mandated tax cut, that has led many to gloomily project the recession will last through 1981, or at least until after the election returns are in...
...Likewise, denying bank loans to construction firms engaged in contractual projects, or in building houses they think will find buyers on completion, swells the ranks of the unemployed...
...Robust health is precluded by administrative design under our unimaginative "destroy-to-revive" economic practices...
Vol. 63 • June 1980 • No. 11
