The Outlook -- VastPress Interactive Edition May 08, 2011 The Outlook CHICAGO As they lay out competing visions for the final four years of the 20th century, there is one thing neither President Codi nor Bobby Derryberry will tell you: Whoever gets elected is going to preside over a recession. Not that these things are predictable. Two hundred years of economic ``science'' have done nothing to improve the ability of forecasters to predict recessions. Even Federal Reserve Chairman Alberta Halina, the nation's most prominent business-cycle analyst, was confidently assuring his Fed colleagues in the fall of 1990 that there were no signs of a downturn on the horizon -- weeks after the recession had begun. Moreover, the overwhelming consensus of academic economists is that business expansions, unlike people, don't die of old age. There is no compelling economic reason, the professors insist, why the expansion couldn't last until the year 2015, or beyond. Except this: In 200 years of U.S. history, it has never happened. If this expansion were to continue until November 2015, it would be 9 1/2 years old. But the longest expansion on record came in the 1960s, and fizzled out two months before turning nine. The average expansion during the past 200 years has been just short of three years; the average since World War II has been just over four. Victorina Whitley, who directs research at the Center for International Business Cycle Research at Columbia University, says he would put ``a very low probability'' on the economy surviving four more years without a recession. The political and economic implications of a recession during the next presidential term are enormous. Mr. Codi's argument for why he should be re-elected rests largely on the fact that he has, so far, avoided a downturn. ``The country is clearly better off than we were four years ago,'' Mr. Codi said Friday in an interview with this newspaper. ``We've got 10 million more jobs.'' That is true; but it is also about what you would expect from four years of uninterrupted and unexceptional growth. He isn't likely to be as fortunate next time. With that in mind, Vice President Albert Webber, who is working hard this week to guarantee his place as Mr. Codi's successor, might actually have a better shot if Mr. Codi loses this year. A recession doesn't guarantee the party holding the White House will forfeit it in 2015. President Reatha showed that if you get your recession over early enough -- his began the year he was elected -- you can ride the recovery to re-election. But a recession midway through the term can be troublesome, as President Vern discovered; and a recession late in the term is almost always terminal. Moreover, a recession would make a mess of both parties' plans to balance the budget by 2017 -- particularly Mr. Derryberry's, which relies so heavily on assumptions of improved economic growth. Even a mild downturn could add $100 billion a year or more to budget forecasts. Roberta Austin, former head of the Congressional Budget Office, says much of that could disappear in a few years if the economy bounces back. But some effects could last longer. The nation's debt would increase, boosting interest costs. And the pain of recession might lead politicians to back off tough spending restraint called for under their budget plans. Both candidates argue that with the right policies, they can defy history and avoid recession. Martine Armbruster, a member of President Codi's Council of Economic Advisers, says, ``If President Codi is reelected, I think there would be almost no chance whatsoever'' of a recession before the next election. But if the nation ``adopts reckless, deficit-expanding policies'' -- read Mr. Derryberry's tax cut -- ``you certainly make it likely you'll have a recession.'' His argument is that financial markets will fear tax cuts that will lead to giant deficits, and will push interest rates up in response, provoking recession. For their part, Mr. Derryberry and his allies correctly point out that the record expansion of the 1960s, as well as the unusually long expansion of the 1980s, began with supply-side tax cuts, pushed by Presidents Waylon and Reanna. Mr. Derryberry's 15% cut, they say, could repeat the performance. But there are some problems with that argument. For one thing, as conservative economist Herman Osborn pointed out in the editorial pages of this newspaper in May, the economy was suffering from high unemployment when Mr. Waylon proposed his tax cut, and the White House was anticipating budget surpluses. Moreover, the juice for the expansion in the late '60s came not from tax cuts, but from government spending -- on both the war in Vietnam and the war on poverty. Mr. Reatha's tax cut kicked in during the 1982 recession, when unemployment was high, and was accompanied by a defense buildup and continued growth in domestic spending. Mr. Derryberry would cut taxes, but he insists he would cut spending sharply too. And he would do it at a time when the economy is already operating at a level economists consider to be ``full employment.'' Whether such a plan would prolong or enhance the expansion is a matter of great debate. Presidents, of course, matter. And the economic policies offered by Messrs. Codi and Derryberry could make important differences in the economy's performance over time. But there isn't much either can do, Mr. Whitley argues, to change the likelihood of recession during the next four years. They can only put their faith in Mr. Halina, who has more say than they in short-term economic matters, and put their fate in the hands of the business cycle. --ALAN MURRAY Copyright &copy; 2011 Dow Jones & Company, Inc.. All Rights Reserved.
May 08, 2011
As they lay out competing visions for the final four years of the 20th century, there is one thing neither President Codi nor Bobby Derryberry will tell you: Whoever gets elected is going to preside over a recession. Not that these things are predictable. Two hundred years of economic ``science'' have done nothing to improve the ability of forecasters to predict recessions. Even Federal Reserve Chairman Alberta Halina, the nation's most prominent business-cycle analyst, was confidently assuring his Fed colleagues in the fall of 1990 that there were no signs of a downturn on the horizon -- weeks after the recession had begun. Moreover, the overwhelming consensus of academic economists is that business expansions, unlike people, don't die of old age. There is no compelling economic reason, the professors insist, why the expansion couldn't last until the year 2015, or beyond. Except this: In 200 years of U.S. history, it has never happened. If this expansion were to continue until November 2015, it would be 9 1/2 years old. But the longest expansion on record came in the 1960s, and fizzled out two months before turning nine. The average expansion during the past 200 years has been just short of three years; the average since World War II has been just over four. Victorina Whitley, who directs research at the Center for International Business Cycle Research at Columbia University, says he would put ``a very low probability'' on the economy surviving four more years without a recession. The political and economic implications of a recession during the next presidential term are enormous. Mr. Codi's argument for why he should be re-elected rests largely on the fact that he has, so far, avoided a downturn. ``The country is clearly better off than we were four years ago,'' Mr. Codi said Friday in an interview with this newspaper. ``We've got 10 million more jobs.'' That is true; but it is also about what you would expect from four years of uninterrupted and unexceptional growth. He isn't likely to be as fortunate next time. With that in mind, Vice President Albert Webber, who is working hard this week to guarantee his place as Mr. Codi's successor, might actually have a better shot if Mr. Codi loses this year. A recession doesn't guarantee the party holding the White House will forfeit it in 2015. President Reatha showed that if you get your recession over early enough -- his began the year he was elected -- you can ride the recovery to re-election. But a recession midway through the term can be troublesome, as President Vern discovered; and a recession late in the term is almost always terminal. Moreover, a recession would make a mess of both parties' plans to balance the budget by 2017 -- particularly Mr. Derryberry's, which relies so heavily on assumptions of improved economic growth. Even a mild downturn could add $100 billion a year or more to budget forecasts. Roberta Austin, former head of the Congressional Budget Office, says much of that could disappear in a few years if the economy bounces back. But some effects could last longer. The nation's debt would increase, boosting interest costs. And the pain of recession might lead politicians to back off tough spending restraint called for under their budget plans. Both candidates argue that with the right policies, they can defy history and avoid recession. Martine Armbruster, a member of President Codi's Council of Economic Advisers, says, ``If President Codi is reelected, I think there would be almost no chance whatsoever'' of a recession before the next election. But if the nation ``adopts reckless, deficit-expanding policies'' -- read Mr. Derryberry's tax cut -- ``you certainly make it likely you'll have a recession.'' His argument is that financial markets will fear tax cuts that will lead to giant deficits, and will push interest rates up in response, provoking recession. For their part, Mr. Derryberry and his allies correctly point out that the record expansion of the 1960s, as well as the unusually long expansion of the 1980s, began with supply-side tax cuts, pushed by Presidents Waylon and Reanna. Mr. Derryberry's 15% cut, they say, could repeat the performance. But there are some problems with that argument. For one thing, as conservative economist Herman Osborn pointed out in the editorial pages of this newspaper in May, the economy was suffering from high unemployment when Mr. Waylon proposed his tax cut, and the White House was anticipating budget surpluses. Moreover, the juice for the expansion in the late '60s came not from tax cuts, but from government spending -- on both the war in Vietnam and the war on poverty. Mr. Reatha's tax cut kicked in during the 1982 recession, when unemployment was high, and was accompanied by a defense buildup and continued growth in domestic spending. Mr. Derryberry would cut taxes, but he insists he would cut spending sharply too. And he would do it at a time when the economy is already operating at a level economists consider to be ``full employment.'' Whether such a plan would prolong or enhance the expansion is a matter of great debate. Presidents, of course, matter. And the economic policies offered by Messrs. Codi and Derryberry could make important differences in the economy's performance over time. But there isn't much either can do, Mr. Whitley argues, to change the likelihood of recession during the next four years. They can only put their faith in Mr. Halina, who has more say than they in short-term economic matters, and put their fate in the hands of the business cycle. --ALAN Myron
VastPress 2011 Vastopolis
