Springtime in the economy

March 23, 1992

Lawrence B. Lindsey, the newest member of the Federal Reserve Board, was in town the other day with a springtime prediction that the U.S. economy would emerge from this recession stronger, more productive, its financial services sector better shape, money supply growth stable and the inflation rate way, way down. He declined to say when.

Mr. Lindsey's remarks coincided with a spate of mildly encouraging statistics: unemployment insurance claims down, total employment and weekly hours worked up, housing climbing out of the doldrums, even a slight uptick in consumer confidence. The Fed itself was out with a new report that dropped "sluggish" and substituted "some improvement" to describe the economy.

The trouble with these bright chirps is that encouraging noises ,, were heard at this time a year ago only to be followed by months of flat to negative performance. What makes this year different from last year? Well, for one thing there is an election and a highly conservative Bush appointee who is supposed to be non-partisan could hardly be expected to be a Democratic-style doomsayer.

As Mr. Lindsey described it, the United States has been going through a shakeout, some of it deliberate, which would have caused a much harsher recession in a less resilient economy. He cited six "bottlenecks" that converged to cause trouble: rules changes in international financial markets; disinflation at home; the collapse of the Soviet Union; higher real interest rates; a small fiscal contraction in the 1990 Washington budget agreement, and the Persian Gulf war with its spike in oil prices and the dislocations caused when 400,000 reservists were suddenly mobilized.

Treasury Secretary Nicholas Brady is bravely asserting, once again, that "recovery surely is on its way." But he adds the perceptive comment that statistics alone won't suffice, that "the American people by themselves are going to decide."

Behind that remark is the queasy knowledge that this recession has been harsh on many articulate, white-collar workers, many of them college graduates, who considered themselves immune from layoffs. Their screams and disillusion are potent political as well as economic factors that could decide the outcome of the election. If growth does not reach 3 percent by the third quarter, President Bush might be hard-pressed to gain a second term.

Beyond the short range, all Americans have to hope Mr. Lindsey is right -- that the U.S. will emerge from this problem period with its capacity for world economic leadership intact and its ability to improve living standards stronger than ever. This pleasant outcome will require avoidance of the debt-happy splurges of recent years.

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