WHEN Alan Greenspan offered an optimistic economic forecast in July, he was careful to hedge; recovery, he said, "could be muted or even falter." This was scarcely noticed in the euphoria of the Fed chairman's conclusion that the recession was over and election year 1992 would see a growth rate of 2 to 3 percent.
More than three months later, Greenspan has confirmed the hedge rather than the prediction. He said the economy was "demonstrably sluggish" though moving forward; and the optimism of July was notably missing from his October speech to business executives in Rhode Island.
This follows President Bush's brief show of concern for the domestic situation, and his renewed call for his favorite panacea, a capital gains tax reduction. The onset of 1992 may more nearly have been at work than real alarm over a lagging economy, but let us judge not that we be not judged; he may have decided belatedly that he wants to be "the economy president" too.
Numerous polls show that the public is not optimistic about the economy, wants something done and is beginning to question why Bush does not spend as much time on the Middle West as on the Middle East. These concerns surely are not lost on Mario Cuomo, as he ponders anew the question of running for president.
On Capitol Hill, too, the economic climate suddenly is being viewed with nearly as much alarm as is usually lavished on the deficit.
Numerous tax-cut proposals have been offered, mostly by Democrats, for "jump-starting" the economy. You're nearing Social Security if you can remember when it was called "pump-priming."
By whatever name, economic stimulus is needed; but tax cuts are not well designed for this job. For one thing, they take a lot of time to be enacted and to have stimulative effect; for another, they can't stimulate if they have to be offset by cuts in government spending, as the present "budget agreement" requires and as current proposals recognize.
Greenspan is being urged, particularly by the Bush administration, to cut interest rates further; but that won't help much either. The real problem is that too many potential consumers are out of work or fearful of layoff, hence have no money to spend or are guarding what they have. Too many businessmen, in such a climate, are afraid even to seek loans to start or expand businesses and provide new jobs.
As John Kenneth Galbraith, the liberal economist, put it in a recent speech to the National Press Club, interest rates can work against inflation because "then you are pulling on the string. Against recession, you are shoving on the string."
But at least Congress, the Fed and even the White House are finally facing the facts that almost any householder or businessman or laid-off worker has known for months -- the recession is not over, the recovery, if any, is indeed muted and faltering, a lot of Americans are in bad shape and afraid things are getting worse, and something needs to be done.
The economy I described in this space in August is more "sluggish" now: "Jobs are disappearing, layoffs are up, consumption is down, unemployment is nearly 7 percent, retail sales are lagging, real estate is a disaster area, banks are failing, credit is tight, wages are stagnant. . . ."
Outside the Beltway, moreover, states and cities are being hit from one side by recession and falling revenues, and from the other by federal aid drastically reduced in obeisance to right-wing theology. The result, from New York to California, is rising state and local taxes, declining state and local services and spending, extensive state and local worker layoffs -- all deflationary.
If Congress could get over its deficit hysteria, if the Fed were not so spooked by the ghost of inflation, if Bush really meant business, the dreaded S-word -- spending -- might not seem so evil.
Billions poured, for example, into highways, bridges, sewers and other needed infrastructural improvements would provide jobs, increase purchasing power, reduce outlays for unemployment, stimulate business, raise revenues, train workers, take the idle off the streets. In the largely forgotten long term, that kind of investment in America might even reduce a deficit swollen in the short term by recession.
If that be heresy, what has orthodoxy done for you lately?