For real recovery, credit’s just a start
TEXT OF INTERVIEW
Kai Ryssdal:
Now that the Treasury Department seems to have settled on a course of action and investors seem to have settled down, at least for now, it’s worth taking a second to wonder about what’s next, economy-wise. For a couple of reasons: One, whatever happens on Wall Street eventually trickles down. And two, it might already have. Yeah, recession is the word I’m thinking of. Economist Steven Fazzari teaches at Washington University in St. Louis. Professor, good to have you with us.
Steven Fazzari: Glad to be here.
Ryssdal: Well, we’ve got the stock market doing better anyway, the credit market is doing better. What about the rest of the economy, have we dodged the recession bullet here do you think?
Fazzari: I don’t think we have dodged the recession bullet. The fact that the markets have turned around and they have reacted favorably to the last policy initiative, is a good thing obviously. But the deeper problems in the economy remain.
Ryssdal: When most of this country thinks about a recession, professor, what does that mean?
Fazzari: Well, probably the biggest thing is that people are concerned about losing their job. A recession involves less output, but it also involves fewer jobs, higher unemployment. So, when people are thinking about a recession, they’re seeing that they may actually lose their job or that the threat of them losing their job is higher. Also, if there is less output produced, there is less income generated. So, people have lower incomes, they would expect probably lower salary increases, smaller bonuses. It’s just a time when economic security suffers.
Ryssdal: Let me put you on the spot here, Are we in one already?
Fazzari: I think we already are in a recession, yes.
Ryssdal: We always focus so much on gross domestic product and things like unemployment. I mean, are there other indices to look for that are going to give us some indication of the relative stability of the economy and how long or short this recession might be?
Fazzari: My best indicator, the indicator I look at most is the job creation numbers, the monthly labor report. Are we increasing jobs at a level necessary to keep up with growth in the labor force. That requires about 140,000 jobs a month. We haven’t been at that level for over a year, so I think that’s maybe the best indicator. GDP, the one that we focus on most, tends to bounce around some. A good export performance in the first half of the year helped GDP, but as the rest of the world starts to feel the effects of these problems, our export growth is likely to slow, if not go negative.
Ryssdal: Have we been here before then?
Fazzari: In the middle 1970s and the early 1980s we had some significant downturns, a much deeper recession than we experienced in the early ’90s or in 2001. Many economists had hoped that those rougher periods were largely behind us and we were in a period that macro economists have come to call the great moderation — when recessions were shallower and shorter. But because of the big problems in the credit markets, I think many of us are concerned that we may see a bit of back to the future here, where the recession is more like what we saw in the 1970s and 1980s.
Ryssdal: If we’re so far behind in job creation then, and if exports are troubled, what does that tell you about how long this recession might be?
Fazzari: Well the rest of 2008 looks bleak by almost anybody’s estimate. I think most economists and analysts now see the first half of 2009 as being quite weak. But I don’t think, personally, that I have that much confidence that we will recover before the end of 2009. There’s lots of uncertainty here, nobody quite knows how long this is going to take.
Ryssdal: What’s it going to take to get out of it then?
Fazzari: Well, the first thing is that we have to see the balance sheets of the household sector repaired. Part of the growth that we’ve gotten for the past couple of decades has been financed by consumers borrowing on their credit cards, against their homes and spending quite freely. And that’s been a source of growth and stimulus for the economy. But the big debt that they built up at that time is certainly at the core of the financial problems we are facing right now. So, these debts have to come back down. Some of that may happen by consumers tightening their belts. Some of it will happen by bankruptcies and defaults that’ll wipe those debts off the books. But we need consumer finance to be in better shape before the economy can recover significantly.
Ryssdal: Steven Fazzari, economist at Washington University in St. Louis. Professor, thanks a lot for your time.
Fazzari: Nice talking to you, Kai.
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