We have been told by the consensus, which supposedly is the summation of opinion in the fraternity of economists, that the recession will be significant but short and shallow, too.
The forecast, therefore, becomes a reality of sort, a work order, an agenda, a guide, an article of faith. But why? With banks teetering, households deep in debt, a war under way, car sales down, unemployment up - why?The question is a good one, and were you to ask any individual forecaster how certain he or she was, the likely reply would be that he or she wasn't certain at all but that, "You know, I'm paid to forecast, so I forecast."
And since the forecast is for a short, shallow recession, these are the more common reasons they offer:
1. The Federal Reserve won't let it last. Finally, after many months of financial austerity, it is cutting interest rates, making it easier for debtors to repay their bills, making it profitable for banks to make loans again.
That is, the battle has changed. No longer is inflation the No. 1 enemy of the economy; recession is. The battle now is to get the economy moving again through easier money, not to slow it by keeping interest rates high.
2. Inventories are in check. In earlier recessions, companies found themselves with enormous supplies of goods on hand, goods they would have to sell before producing more. Thus, recessions were deepened and prolonged.
This time, it isn't so. The onset of recession was no surprise; we've been talking about the possibility for two years. Companies have had plenty of time to adjust, and they have.
Moreover, a new (to Americans) management tool - just-in-time production - has been put to use. Instead of stockpiling materials, companies arrange with suppliers to have items delivered only as they are needed.
3. Exports are becoming stronger. They were among the few bright spots in the economy in 1990, growing by more than 8 percent, excluding farm products. Americans have become export-oriented, much aided by a falling dollar.
4. Inflation seems to be under control. Seems to be! Higher energy prices could explode that assumption like a Patriot missile on a mission. Still, it is one of the more popular assumptions of the short-and-shallow thesis.
There are absolutely no guarantees offered by those who promulgate this thesis, and if it goes wrong there will be no apologies offered. Its authors will simply forecast again.
For now, however, it is the reigning thesis. It has imposed itself on the thoughts and actions of the nation, and so it must be dealt with as if it were a visible, functional reality. But keep this in mind:
Since World War II there have been eight recessions, averaging 11 months and causing an average shrinkage of 2.6 percent in the nation's gross national product.
But, the two worst recessions were among the most recent three: a 16-month recession that ended in March 1975 with a 4.3 percent GNP shrinkage, and a 16-month decline through November 1982 after a loss of 3.4 percent in GNP.
In between was the six-month recession from February to July 1980, when the GNP fell 2.3 percent. But some analysts claim that recession was merely an early edition, even part, of the deep recession that began in August 1981.