By Mary Jo Frank
Officially, the U.S. recession began in the third quarter of 1990. It appears to have lasted only three quarters, and domestic production has increased in each of the past five quarters (second quarter 1991 through second quarter 1992).
Why does it still hurt?
“Compared to our own history, we’re doing a lousy job of coming out of this recession,” economics Prof. Saul H. Hymans told several hundred alumni and friends attending LS&A’s “Back to Class” program held as part of the Sept. 18 Campaign for Michigan kickoff.
Hymans, who has taught at the U-M since 1964 and is nationally known for his economic forecasts, spoke on “Economic Policy in a Presidential Election Year.”
Despite the slow but steady growth in the United States since early 1991, we’re still not at a level of production equal to that of the second quarter of 1990, Hymans said.
To illustrate how the 1990–91 recession differs from recessions that ended in 1960, 1970, 1975 and 1982, Hymans pointed out that after each of those recessions, production climbed sharply and unemployment fell.
In the most recent downturn, however, unemployment increased by 1.5 million from mid-1990 to the summer of 1991 and then increased by another 1.2 million between August 1991 and August 1992.
Hymans said the Federal Reserve System, which regulates monetary policy, has pushed down interest rates at an extraordinary rate to make credit more available. “There is no question that the Federal Reserve has been trying to be helpful to the economic recovery process.”
The White House and Congress have two tools to stimulate the economy: taxes and spending. They can cut taxes, leaving more money for households and businesses to spend. They also can spend more on goods and services.
Taxes have been moving down slowly as a percentage of taxable income, Hymans said, but have not recently come nearly as much as in prior recession recovery periods. Federal spending also has remained flat, providing no stimulus for the economic recovery.
The White House and Congress are paralyzed when it comes to stimulating the economy, Hymans explained, “because the federal budget deficit is out of control and our fiscal policy is in shambles.”
Consumers are worried about the future of the economy and even though most people believe it is an excellent time to buy cars, houses and large durable goods, they are unwilling to make long-term commitments on these big-ticket items.
Not since mid-1973, when the University’s Survey Research Center began collecting the data, have American households had a worse opinion about the federal government’s handling of economic policy. Until perceptions about the government’s ability to handle the economy improve, Hymans said, households and businesses are not likely to start spending much more freely.
What is needed, he said, is a plan that increases spending to stimulate the economy now, followed by policies to generate more revenue subsequently, to keep the federal budget deficit from spinning further out of control.
