The Rise of the ?R’ Word (Editorial)

It seems that, almost overnight, recession has become a major topic of conversation everywhere. Many think the country already is in a recession.  

Yes, unemployment is on the rise, the housing market has tanked, new construction is declining, retail sales for the past couple of months have been disappointing, manufacturing has stalled, and the credit crunch has shaken the faith of many. The stock market has experienced some wild swings because of the daily news on the discouraging economic events.

While we know some people, some companies and some areas of the country are already in recession, it’s still hard to avoid the conclusion that the country has talked itself into the idea. The economy is slowing, but it’s still growing, albeit at a slower pace. The biggest problem may be a growing fear of what lies ahead.

The Federal Reserve is concerned enough that it may cut rates yet again when it meets at the end of the January despite new inflation data.

What actions, if any, should be taken now to lessen the possibility or effects of a recession?

Political leaders have already started looking into how to do just that – considering something they like to call a stimulus package. Of course, the devil is in the details and there will be much wrangling before any compromise can be reached. At least we hope for a compromise, but considering the highly partisan politics being played out in Washington these days, that may be wishful thinking.

Recently, former Treasury Secretary Lawrence Summers told Congress that the economy has worsened to the point it should pass an economic stimulus bill of up to $150 billion.

To their credit, House Speaker Nancy Pelosi, D-Calif., and Minority Leader John Boehner, R-Ohio, have promised bipartisan cooperation on a potential stimulus bill.

The Economic Policy Institute has offered a $140 billion plan that would focus on pumping money into the hands of low- and middle-income Americans and public infrastructure projects such as repairing schools and bridges and creating “green” jobs.

So, should Congress act as soon as possible or wait until a recession is declared?

We can only look back and see what happened the last time – when the Bush administration and Congress waited too long and then did too little. Their delay and insufficient efforts hampered the recovery of the economy and job market.

It would be better to act now, perhaps with a trigger release as advocated by Summers if conditions worsen.

The EPI thinks any economic stimulus works best at the beginning of a recession. By the time a recession is declared, based necessarily on old data, growing pessimism makes the climb back out much more difficult.

We think the EPI’s position makes sense. And seeing Congress taking action to right the economy just might restore some confidence by itself.