A silver lining in clouds of war, economy?



After about the third day of the gulf war, it hit me that there was something largely missing from the news coverage and the intense discussions about the war with friends and family members. There was apprehension and certainly fear about the war. But there was no negativism, or, as one of Maryland's former favorite sons once put it, no "nattering nabobs of negativism."

The early conduct of the war has only strengthened these positive feelings. Loss of life has been minimal, and the demonstrated prowess of allied forces and U.S. military technologies has been nothing short of miraculous. The jokes about $600 toilet seats may not be gone forever, but defense contractors can now clearly point toward the kinds of positive performance that were once untested claims.

Compare these attitudes with the bunker mentalities that have come to characterize economic affairs at the national, state and local levels. Here, the views are overwhelmingly negative. Long after we've grown weary of being reminded about our problems, we continue to be bombarded with bad news and other negative messages -- budget deficits at all levels of government, continued loss of markets to foreign competitors, real estate and banking collapses, bankruptcies and on and on.

There will be time enough to return to all this bad news. For now, it's important to acknowledge that the nation, while hardly bellicose, seems clearly starved for the chance to feel good about itself.


Still looking for the silver lining, it's said that recessions are an economic cure for what ails us. Through the phases of what we call the business cycle, the economy's growth creates the causes of a later recession.

As the economy picks up steam, shortages of labor, capital and natural resources occur -- usually in the form of rising prices for these items but sometimes in absolute shortages as well. These shortages, in turn, lead to reduced productivity, lower profits, reduced capital spending by businesses and, ultimately, to a slowdown that can include layoffs and a recessionary decline.

Not all economic declines become recessions, of course, and the recovery that began after the 1981-82 recession went through several dips that did not turn into full-blown downturns. However, it's clear in the eyes of most economists that the reduction in output that was felt so sharply in last year's final three months was the start of something more serious. Further, despite frequent reports of its demise, it appears that the business cycle is still working its will on the economy.

Unlike recent recessions, the current decline is caused largely by a capital shortage. After roughly a decade of sustained deficit financing at most levels of the private sector as well as in the government, we've simply run out of money.

The excess debt that we've taken on is being "worked off" primarily in real estate and banking but, to a lesser extent, in retailing and in special situations involving companies whose balance sheets are heavy with debt.

Thus, the big unknown in the current environment is how long it will take these sectors to "downsize" -- as the manufacturing sector did during the last recession -- and emerge in smaller yet more financially sound condition.

The outlook is further clouded by the roles of federal banking regulators. Their actions, to prop up some ailing institutions and take over and operate others, are impeding or at least delaying the workings of the marketplace. And it's not clear that they are doing anything other than putting off the day of reckoning, while raising the price tag in the process.

It is clear that it is very tough to hold back the workings of the business cycle. It's also clear that we haven't yet absorbed all of the debt-related problems that are out there. One can only hope that other sectors of the economy will start to recover soon, helping to cushion any further debt-related declines.


That goes double for Baltimore, which has been getting shellacked by a combination of corporate restructurings and layoffs, bankruptcies and public-sector reversals. The Greater Baltimore Committee will try to address some of these problems this afternoon when it releases its vision for what its news release calls a "healthy and thriving Baltimore City."

The GBC, the region's most authoritative business group, has been absorbed for some time with how to put forward an effective and positive agenda for the community in an era of declining government resources and slower economic growth.

Other groups have been engaged in similar exercises as they search for some sequel to Baltimore's wildly successful program that developed

downtown and the Inner Harbor in the 1960s and 1970s. But they've found it difficult to turn the obvious desires for better schools, better jobs and an improved quality of life into a realistic and workable program.

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