NCPA - National Center for Policy Analysis

A Recession Cometh

October 18, 2000

Al Gore and George W. Bush both seem to take the good economy for granted. However, there are growing signs that the next president will deal with a recession soon after taking office.

Most economists agree that high technology and the Internet have raised the long-run growth potential of the U.S. economy; however, they also agree the economy is still subject to the ups and downs of the business cycle. And some see signs of a coming recession:

  • Victor Canto of La Jolla Economics believes the Fed will not allow the overall price level to rise, which means higher energy prices must be absorbed by pushing down the prices of other commodities.
  • The decline in industrial commodities, such as lumber and metals, has already plunged some industries into a de facto recession, says Susan Hickok of Prudential Economics, and other industries are on the brink.
  • The one-third fall in the tech-heavy NASDAQ market -- which reduced the financial wealth and income of workers who receive much of their compensation in stock options -- is already depressing consumption and substantially increases the risk of a recession, says Stephen Roach of Morgan Stanley Dean Witter.
  • Alan Reynolds of the Hudson Institute puts the chance of a recession next year at 60 percent, citing the lagged effect of tight Fed monetary policy and high real interest rates.
  • Brian Wesbury of Griffin, Kubik, Stephens and Thompson puts the odds of a recession next year at one-in-three, due to the depressing effect of budget surpluses on short-term growth rates.

The early signs of a recession are there and ought to be an issue in the presidential campaign. Wesbury, for instance, thinks Bush's tax cut may be our last line of defense against a recession.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, October 18, 2000.


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