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Jewish World Review Nov. 21, 2002 / 16 Kislev, 5763

Mort Zuckerman

Mort Zuckerman
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Consumer Reports

Curing the uncommon cold | Not for nothing is economics called the dismal science. These days, economists are feeling not just dismal but downcast, depressed, and dejected. At the start of 2001, most believed we wouldn't have a recession; we were already in one. Most predicted, both in 2001 and again in 2002, that gross domestic product would grow between 3 percent and 4 percent each year. Even without 9/11 those predictions would have been off the mark. Way off. Our economic policymakers similarly reckoned that corporate investment would have revived by now, thanks to the dramatic cuts in interest rates and a fiscally stimulative tax cut. Wrong again. Oops. Capacity utilization in the manufacturing sector today is only 74.4 percent, close to the low of 73 percent last December–the worst at this stage of recovery since the Great Depression.

The real problem is that we are in a different kind of recession. Clamping down on inflation, by tight money, took us into all the postwar recessions. Not this time. Inflation was virtually nonexistent. It was an investment bust, not the Fed, that accounted entirely for the fall in GDP in the first three quarters of last year. The Fed, in fact, began cutting rates before it was clear we were in a recession. And it hasn't worked to revive investment. Businesses have been trapped by the "too much" syndrome: too much capacity, too much debt, too much competition. The extraordinary growth in productivity, fruit of the 1990s investment boom, allowed firms to cut workers, but even so, profits have suffered their sharpest decline in decades.

No more Mr. Micawber. What now? Surveys from the National Association of Manufacturers and the National Federation of Independent Business indicate that CEOs intend to keep holding back on capital spending while they look for still more cost cuts. Does this mean that the people who write about the economy are more optimistic than the folks who write checks?

Well, on the bright side, the economy has done remarkably well in the face of terrorism, a synchronized global slowdown, endless accounting scandals, and climbing oil prices. The optimists rely on the fact that tech spending and capital expenditures, other than aircraft and energy, continue to grow, the unemployment rate remains low, and household incomes are up, with total compensation increasing by over 4 percent.

The real bright spot, of course, is the massive mortgage refinancing and the support to increased home values and new housing provided by record-low interest rates. This year's "cash-out" refinancing is estimated to provide the consumer with over $200 billion in tax-free money, a big boost to spending since about two thirds tends to be spent and the rest goes to pay down nonmortgage debt.

Pessimists can point to other evidence: higher initial claims for unemployment insurance; consumer confidence plunging to the lowest level since 1994; the stock market in its third straight year of declines–something we haven't seen since 1939 to 1941. For those with strong stomachs, there's more: leading indicators down four months in a row, auto sales slumping from their summer highs. Consumers are retrenching and focusing on replenishing their net worth.

Much will depend on Christmas sales, but on balance, we seem to face a protracted period of slow growth at best or a further slump in output at worst, with the evil demon of deflation waiting in the wings.

It is time, plainly, for the White House and Congress to come up with a plan. The downside risks are too severe to go on hoping, like Mr. Micawber, that something will turn up. Here are five steps that might be useful:

1. Take the present worth of the future tax-cut program approved earlier and schedule the cuts over the next two years, when we'll need them most. It simply makes no sense, as is now the plan, to stretch these cuts out over the rest of the decade. Fed Chairman Alan Greenspan has supported President Bush's wish to make the future tax cuts permanent, because they are already factored into investment and corporate planning. But the real need is now.

2. Accelerate depreciation to stimulate investment.

3. Extend unemployment compensation for those out of work for long periods of time.

4. Help the states. Revenues in state coffers have plummeted across the country, forcing governors to slash spending and lay off workers.

5. Change the team. The confidence of the business community and the consumer has been anything but buoyed by the performance of the Bush team's economic leadership. New blood, and brains, are required.

Desperate times, as the wise man once said, require desperate measures. Act quickly on all five fronts, and the dismal science might not be so dismal. Delay, and our economics will remain as gloomy as the conditions of far too many Americans today.

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JWR contributor Mort Zuckerman is editor-in-chief and publisher of U.S. News and World Report. Send your comments to him by clicking here.


11/12/02:Everybody has the right to be wrong but the Dems have been abusing the privilege
11/05/02: Force vs. fanaticism
10/30/02: Land of the sinking sun
10/22/02: No more cat and mouse
10/15/02: And pigs will fly
10/07/02: A shameful contagion
09/26/02: Calling a madman's number
09/23/02: Our rainbow underclass
09/13/02: Why America must act
09/04/02: After bubbles, a double dip?
08/20/02: No time for equivocation
08/06/02: No time for politics
07/30/02: Getting off the dime
07/17/02: What scandal cannot dim
06/18/02: Time to crack down: Where is the outrage?
06/05/02: The next new thing
04/30/02: Roller-coaster nation
04/25/02: A critical tipping point
04/15/02: Israel's endgame will impact the free world
03/21/02: In the face of pure evil
03/14/02: A man on a mission
03/07/02: Land of the Sinking Sun
02/12/02: Speaking truth about energy
01/15/02: Putting our house in order
01/12/02: Talking points for 2002
12/24/01: The shape of things to come
12/11/01: Finally, a clarity of vision
12/04/01: Apocalypse now
11/26/01: The Big Apple's core
11/06/01: What it will take to win
10/22/01: Getting the mayor's message
10/08/01: A remedy for repair
10/01/01: A question of priorities
09/26/01: Our mission, our moment
09/11/01: Running the asylum
08/29/01: Hail, brave consumer
06/14/01: Blackouts --- or blackmail?
06/01/01: A time to reap --- and sow
05/25/01: A question of confidence
05/18/01: A question of confidence
05/04/01: Making the grade
04/26/01: The caribou conundrum
04/19/01: Chinese boomerang
03/27/01: The man of the moment
03/20/01: The Fed must be bold
03/15/01: Japan on the brink
03/01/01: Rethinking the next war
02/09/01: The education paradox
01/08/01: How the bottom fell out
01/03/01: Quipping in the new year
12/20/00: A time for healing
11/13/00: The need for legitimacy
10/30/00: Arafat's bloody cynicism
10/18/00: Arafat torches peace
10/03/00: A great step backward
09/08/00: The Perfect Storm
08/29/00: Don't blow the surplus
08/15/00: Voting for grown-ups
08/01/00: Arafat's lack of nerve
07/17/00: Can there be a new peace between old enemies? Or will new enemies regress to an old state of war?
07/11/00: A time to celebrate
06/19/00: A bit of straight talk
06/08/00: Using hate against Israel
05/26/00: Is the Federal Reserve trigger-happy?
04/18/00: Tensions on the 'Net
04/13/00: A paranoid power
03/10/00: Fuel prices in the red zone
02/25/00: Web wake-up call
02/18/00: Back to the future
01/21/00: Whistling while we work
01/11/00: Loose lips, fast quips
12/23/99: The times of our lives
12/14/99: Hey, big spender
11/18/99: Fountain of Youth
11/04/99: An impossible partner
10/14/99: A nation divided
10/05/99: India at center stage
09/21/99: Along with good cops, we need a better probation system
09/08/99: Though plundered and confused, Russia can solve its problems
08/31/99: The military should spend more on forces and less on facilities
08/05/99: Squandering the surplus
07/06/99: More than ever, America's unique promise is a reality
06/24/99: The time has come to hit the brakes on affirmative action
06/15/99: America should take pride in honoring its responsibilities
06/02/99: The Middle Kingdom shows its antagonistic side
05/11/99: Technology's transforming power is giving a lift to everything
05/04/99: The big game gets bigger
04/30/99: On Kosovo, Russia talked loudly and carried a small stick
04/21/99: No time to go wobbly
04/13/99: The Evil of two lessers

© 2001, Mortimer Zuckerman