Election 2008: Recession talk

Morra Aarons Mele — Wed, 12 Mar 2008 21:30:07 -0500

Today, New Jersey Governor Jon Corzine said “We are in a recession…We have pretty strong indications that we have seen a major, major downshift in the economy. I think we'll find we started in the last quarter of last year." And he should know; he used to be head of Goldman Sachs. Former Treasury Secretary Larry Summers said the US faces the “gravest set of economic and credit difficulties possibly since World War II and is likely already in a recession.”

So what does this mean? I don’t know, because this goes way beyond my Macroeconomics 101. If we are in a recession, do we one day get a notice in the mail? Is there a message on our TV from the emergency broadcast system? No, it doesn’t seem so. But the signs are insidious and they are here. This hits home for me since I’m about to start looking for a job. Like BlogHer Suzanne I'm looking for something “recession proof.”

Americans are stressed out: A February American Research Group poll states that a total of 1% of Americans say that the national economy is getting better, 20% say it is staying the same, and 78% say the national economy is getting worse. Overall, 47% of Americans say they believe that the national economy is in a recession, 29% say they do not believe the economy is in a recession, and 24% are undecided. Interestingly, when it comes to rating their household financial situations, 59% of Americans give an excellent, very good, or good rating and 40% give a bad, very bad, or terrible rating. This is the thing: we read that we’re in a recession, but life does go on.

A recession is not a Depression. It’s a temporary shrinking of the economy. I think we can all look back at the past few years and realize things got a little crazy. We can also agree there is a role for Government here. The Fed has cut benchmark interest rates five times by a combined 2.25 percentage points since September, and it’s lending $200 billion to banks affected by the credit squeeze resulting from sub-prime mortgages gone bad. It seems to this non-economist that everyone’s panicking. As Megan McArdle writes, “What's happening to the credit markets is a little akin to a bank run. The underlying conditions may be somewhat shaky, but what's really screwing things up is that everyone's trying to run for the exits--or just play possum--at once.”

As for the candidates, what are they saying?

Hillary Clinton said “We might be sliding into a recession,” and unveiled a “$70 Billion Stimulus Plan” to:

• Establish a $30 Billion Emergency Housing Crisis Fund to assist states and cities mitigate the effects of mounting foreclosures
• Take bold action to stem tide of foreclosure, including a 90-day moratorium on subprime foreclosures and an automatic rate freeze on subprime mortgages of at least five years
• Provide $25 billion in emergency energy assistance for families facing skyrocketing heating bills
• Accelerating $5 billion in energy efficiency and alternative energy investments to jumpstart green collar job growth:
• Invest $10 billion in extending and broadening unemployment insurance for those who are struggling to find work:

Like Bush, “Senator Clinton believes we need to jumpstart the economy without negatively affecting America’s long-term fiscal position. In addition, her plan targets assistance toward hardworking families which are most likely to spend new resources, which will ensure that we give the economy an immediate boost.” Sorry but this is an oxymoron to me. Lower income Americans need to be more mindful about consumer spending, not less. The quicker we spend now, the more we endanger America’s long term fiscal position. But this seems to be a very politically unpopular opinion, so perhaps it's wrong too.

John McCain has said “It’s very likely we’re in a recession.” As for John McCain's acuity, I’m with Paul Krugman:

“…John McCain is hampered by the admission that economics isn’t his thing. “The issue of economics is not something I’ve understood as well as I should,” he says. “I’ve got Greenspan’s book.”
His self-deprecating humor is attractive, as always. But shouldn’t we worry about a candidate who’s so out of touch that he regards Mr. Bubble, the man who refused to regulate subprime lending and assured us that there was at most some “froth” in the housing market, as a source of sage advice?

At the same time, like most Republicans, McCain ascension to office would likely be greeted happily by Wall St. Indeed, his stimulus plan is about business: permanent tax cuts for corporations and wealthy Americans. McCain also wants to trim Medicare and other entitlement programs, so read this with a cynical eye: “John McCain has always believed in the power of the American people, and the importance of keeping marginal tax rates low. But, tax cuts work best when accompanied by lower spending. Higher taxes and greater spending discourage entrepreneurship, foster wasteful tax-planning and slow long-term growth. Intelligently-formulated tax cuts and sensible tax reform will deliver much higher growth when they are accompanied by lower spending.”

Barack Obama has said the economy is on the brink of a recession, and blames the Bush Tax Cuts for America’s wealthiest 1% as a culprit. I tried to find a copy of his stimulus plan, but I couldn’t. I did appreciate UC Berkeley Econ Professor Brad DeLong’s take on Obama’s plan here. His point is that Obama’s plan is clean and gets cash into people’s hands quickly, and thus, like Bush’s recent plan, is much more likely to pass than Clinton’s more ambitious proposal.

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Election 2008: Recession talk