Borrowed Time
December 15, 2008
American Conservative
It’s official–according to the National Bureau of Economic Advisers, the United States is in recession and has been since December 2007. That puts the current downturn on pace to surpass the 16-month recessions in 1981-82 and 1973-75 as the longest since World War II. It will almost certainly be the deepest in decades.
Outside of plunging real estate prices and swooning stocks, America still feels surprisingly normal. Unemployment has ticked up over the past year, and at an accelerating pace, but remained at a modest 6.5 percent through October–though that translates into 10.1 million Americans out of work. Still, it’s a far cry from the 10.8 percent unemployment of ‘81-’82. Economic optimists insist that while the worse may be yet to come, the country is not on the edge of disaster.
But there are reasons to doubt the Pollyannas. Amity Shlaes, writing at Bloomberg.com, points to a silver lining that is actually a storm cloud: “Today, a greater share of the population works in parts of the economy that are buffered against recession–government, schools or health care.” Should we sigh in relief? The semi-nationalization of America’s financial sector led conservatives to cry socialism. But with government and the highly regulated fields of education and healthcare as the three largest service-sector employers, some 40 million Americans work for the state directly or at one remove–and that doesn’t include government contractors. Buffered against recession? You bet: government will only grow, and reach deeper into other sectors, as the private economy declines.
Right now, Americans marking down the prices of vastly inflated stocks and houses are locked in struggle with a government desperately trying to keep prices up. If the people succeed, prices will fall, which will lead to more layoffs, less consumption, and greater contraction–but savers will be rewarded and speculators punished, which is exactly what needs to happen to restore the system to solvency. If the government wins out, however, we’ll escape deflation at the price of inflation, which will vacuum the wealth right out of Americans’ pockets, rewarding debt-addicts and punishing the frugal. The difference between a prolonged recession and a full-blown catastrophe hangs in the balance.