The New York Times today carries a series of sometimes sickening op/ed pieces in which various “experts” pontificate as to whether we are in a recession. In its own editorial, the Times observes that “the banks still have to cope with hundreds of billions of dollars of long-term loans that may well go bad as the housing market weakens and defaults soar — the same for securities that are tied to those loans. Given those underlying problems, a severe downturn, if not an outright recession, may be unavoidable.”
Stephen Roach argues that this recession will be worse than the dot-com bust. “The dot-com-led downturn was set off by a collapse in business capital spending, which at its peak in 2000 accounted for only 13 percent of the country’s gross domestic product. The current recession is all about the coming capitulation of the American consumer — whose spending now accounts for a record 72 percent of G.D.P.” Laura Tyson explains what’s getting the consumer down, writing, “The resetting of interest rates on more than 2 million subprime loans will prompt a large number of foreclosures, perhaps a million a year in both 2008 and 2009. These huge waves of foreclosures will depress the price of residential real estate still further. Plummeting real estate values and escalating foreclosures will cause further losses on mortgage-related securities and will further burden American consumers already dealing with higher energy prices and substantial debt.” Against this large number of foreclosures, she criticizes the Bush administration’s plan for dealing with the subprime crisis as helping only a few homeowners.
Marcelle Chauvet and Kevin Hassett, promoting their new book, argue on a statistical measure that the answer is no, but rely on numbers which have only been updated as of October. Jason Furman thinks exports will save the day; he relies on GDP statistics that only go through the end of September. James Grant celebrates recessions as the “sorting out of boomtime error. They permit — indeed, force — the repricing of inflated assets. In a downturn, previously overpriced businesses, houses and buildings are made affordable again.” The problem of the wait for statistics prompts Martin Feldstein to write that we’ll have to wait til next year to find out. But Feldstein also apparently pulls an opinion out of his ass, writing, “My judgment is that when we look back at December with the data released in 2008 we will conclude that the economy is not in recession now.”
But Furman also writes:
Even if the economy avoids a recession, the road ahead will be rocky. A slowing economy compounds the problems facing workers, who did not receive inflation-adjusted wage gains even in the past few years of strong G.D.P. growth. As our focus necessarily shifts to the short-run task of averting a recession, we should not forget the need for the progressive tax policies and robust social insurance that are needed to help everyone share in the gains of a strong economy.