Recession?

There has been a lot of hand-wringing in the media, especially the financial press, about whether we are about to experience the second dip of a double-dip recession. At the same time there are people who say that, with 10% unemployment, why should we say we are not in a recession now?

It may indeed turn out that future economists will look back at this period of time--especially if we do have another dip--as one long recession. The anemic growth that we do have is totally created by government action: stimulus spending by Congress and easy money by the Federal Reserve. The conditions that created the recession have not yet been resolved.

On the other hand, the doomsday predictions from some quarters of a catastrophic failure of our economy and indeed our civilization have not come to pass, despite the fact that the potential did definitely seem to be there for a very hard landing. We are not out of the woods yet (see Europe), but maybe we will survive.

Though conditions existed in 2008 that could have led to as big a collapse as the one that led to the Great Depression, there are three huge differences in how the crisis has been handled compared to how things were handled at the beginning of the Depression.

1. In 1929 and 1930, nothing was done to stop the world's currencies from deflating catastrophically. In today's crisis, everything possible was done to prevent that, and so far it appears that those efforts have been successful.

2. In the Depression, banks were allowed to fail, and they did in droves, with disastrous effect. People's life savings were wiped out. Many (but by no means all!) ended up with no money, no job and often with no place to live. In 2008, banks were not allowed to fail; they were bailed out. This was a necessary action, distasteful as it was to many people.

3. At the beginning of the Depression, taxes were raised significantly. Though there are voices calling for more taxes today, so far everyone has been sensible enough to realize that that would be a bad thing for the economy.

Stimulus spending has also been used more extensively now than during the Depression, but it depends on which economist you talk to as to whether that is a good thing or not.

In short, it appears that we have actually learned something, and we are not totally repeating the mistakes of the past. We may have done just as bad a job when it came to getting ourselves into this mess, but the people who have been handling it have been aware of the things that were done wrong during the Depression, and they have done something different. This, I guess, is progress.

The market forces that always handle and heal the causes and lingering effects of a recession are at work, and they will resolve these things in time. (Two or three more years perhaps.) Then we will have a real recovery, and it will be a good one.