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Uncle Sam: Down but Not Out
| Article
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19836 |
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Section : |
CURRENT ISSUES
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| Issue
Date : |
5 / 1991 |
3,503 Words |
| Author
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Murray Weidenbaum
Murray Weidenbaum director of the Center for the Study of
American Business at Washington University in St. Louis and a
former chairman of the President's Council of Economic
Advisers. |
It is unpopular to present an upbeat economic scenario for a nation in recession, but a positive long-term outlook surely can be justified for the United States. To be realistic, one must acknowledge the problems now facing the American economy. An examination of how we got where we are is also helpful in examining alternatives for the future.
There is no shortage of problems facing the United States. Recent months have seen active hostilities between the United States and Iraq. Domestically, the budget deficit is expanding rapidly; the total amount of federal borrowing in the current fiscal year will reach a record high of over $300 billion.
A large number of the nation's savings and loan institutions have collapsed, and important banks, large and small, are being bailed out or closed down. The number of new homes being built is at a recession low, and real estate in general is undergoing a painful deflation in values. Unemployment is on the rise once again, and the rate of new business formation is falling. The trade deficit remains stubbornly large.
The year 1991 is clearly an unhappy time for American consumers, employees, business executives, and government officials. The economic problem can be described, at least in part, in terms of a good news/bad news analysis. The good news is that the United States has just completed the longest peacetime expansion in the nation's history. The negative aspect of that experience is that many Americans have forgotten that the ups and downs of the business cycle are normal occurrences and should not be greeted with panic.
How recession came about
Much of the weakness in American business today is cyclical and thus temporary. Yet we need to recall the origin of the current recession. It is easy to blame the recession on the sharp run-up in oil prices brought about by the Iraqi invasion of Kuwait. The rise in oil prices was the equivalent of a large OPEC tax on the American economy, since the United States now imports about half of its oil supply. This "tax increase" was clearly an economic depressant, pulling billions of dollars of purchasing power out of the national economy. But it could only tip us over into recession because we were so close to that condition just before the invasion of Kuwait in early August.
Recall the business outlook during late July 1990. The record recovery was fast
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