The US economy is walking a tight-rope.
The sharp drop-off in growth in the first quarter of 2007, and the expected weak second and third quarters of less than 2% growth, caused the widely watched UCLA Anderson Forecast, a leading national economic forecaster, to conclude that although we may not actually be in a recession “it is certainly close.”
Only days later, the New York Times reported a $3.2 billion move by Bear Stearns, the investment bank, to bail out one of its hedge funds that was collapsing because of bad debts on sub-prime mortgages.
The Anderson Forecast saw the slowed economy as lasting longer than previously expected. Weakness in the housing market and higher gasoline prices are starting to affect consumer spending. California, hit by a “double-whammy” from construction and mortgage finance, foreshadows a drag on the rest of the economy.
A recession is usually defined as a decline in a country’s real Gross Domestic Product (GDP) for two or more successive quarters.
Market-oriented, or capitalist, economies are characterized by economic cycles. The business cycle represents swings between periods of relatively rapid growth and periods of relative stagnation. Capitalism is noted for its cycles. Its nature is to boom and bust.
There have been a number of such bounces–recessions, financial crises, depressions and just plain downturns since the Panic of 1819, the first major financial crisis in the United States, when our capitalist system was still in diapers. That one lasted until 1824 before the economy recovered only to be hit again by the Panic of 1837 which lasted until 1843, due to bank failures and the public’s lack of confidence in paper money. It was followed by the Panic of 1857 and the Panic of 1873 prompted by the failure of Jay Cooke & Co., the largest bank in the United States at the time. This panic finally burst the post-Civil War speculative bubble.
Wars are frequently associated with these cycles because wars are used to stimulate the economy enough to help pull it out of the slump. The so-called “Long Depression” that began with the Panic of 1873 lasted until 1896 and spread throughout the world.
President William McKinley, who took office in 1897, called himself “an advance agent of prosperity” and his administration wowed the robber barons with his dramatic action. One of his first acts was to convince Congress to annex Hawaii and make it a US Territory. Something new had been added to the US form of government, and McKinley said this about it: “We need Hawaii just as much as we did California.”
McKinley found another way of enhancing prosperity. The explosion (cause unknown) on the USS Maine in Havana harbor killing 274 men, gave him a reason to declare war on Spain in 1898.
Victory in the Spanish-America War after only 109 days, garnered for the United States ownership of former Spanish colonies–Puerto Rico, the Philippines and Guam. Secretary of State John Hay called it a “splendid little war!” We also took control of Cuba, expelling the Spanish and ending the insurrection there. The naval war in Cuba and the Philippines was the most profitable war in US history. The United States was well on its way to becoming a first rate imperial power.
Then along came the Panic of 1907; a run on Knickerbocker Trust Company stock that set the stage for future economic problems.
After the post-WWI recession that caused severe hyperinflation in Europe, production in North America took a dive.
The Great Depression hit with a crash. First, the stock market in 1929; then the banking collapse that sparked a global downturn.
Despite Roosevelt’s gallant effort with the NRA and other supportive devices like the TVA and the WPA, the economy stumbled along well into the beginning of World War II. The economy saved by another war.
Recession came again after the Korean War in 1953. They just won’t quit. We used the Vietnam War to get away from that one. But it only bogged us down until 1975 when we lost to the Vietnamese communists. Before the war ended, we had the 1973 oil crisis–a quadrupling of oil prices by OPEC and high government spending–a war and stagflation at the same time.
In 1979, the Iranian Revolution was a bolt from the blue. Not only did the Ayatollahs seizure American hostages but they also skyrocketed the price of oil. The result: early 1980s recession and drop in commodity prices that lasted until the year 2000.
From 1988 to 1992 we saw the collapse of bonds and a stock market crash that led to a recession in much of the world.
The Japanese recession started in 1991 and is still going on. The collapse of a real estate bubble and more fundamental problems halted Japan’s once astronomical growth. The general Asian financial crisis started in 1997. The collapse of the Thai currency inflicted damage on many of the Asian economies.
An early 2000 recession, the collapse of the Dot Com Bubble, the 9/11 attack, the Afghanistan and Iraq Wars are now contributing to our present problems.
George W. Bush seems to be a spiritual follower of President McKinley. The cost of the Iraq war will wind up costing American taxpayers an estimated 1 trillion dollars. Can you wrap your head around that figure? In numbers it looks like this: $1,000,000,000,000. Or, if you want to look at it another way; $200 million a day or $3 billion a week, by Congressional estimates.
Think of what can be done, in this country, with that kind of money– rebuilding the infrastructure, our schools and our hospital, paying for National Health Insurance, clean air and fresh water and development of pollution free energy, and that’s only for starters.
Lawrence Lindsey, economic adviser in the Bush Administration, when asked by The Wall Street Journal about the cost of the Iraq war replied, “The successful prosecution of the war would be good for the economy.”
STEPHEN FLEISCHMAN, television writer-director-producer, spent thirty years in Network News at CBS and ABC, starting in 1953. In 1959, he participated in the formation of the renowned Murrow-Friendly “CBS Reports” series. In 1983, Fleischman won the prestigious Columbia University-DuPont Television Journalism Award. In 2004, he wrote his memoir. See: http://www.ARedintheHouse.com/, E-mail: firstname.lastname@example.org