Not the End of the World as We Know It

CAMBRIDGE: “Reports of my demise are greatly exaggerated,” Mark Twain once quipped. The same can be said of expectations about a hard landing in the US. Yes, things have become tougher – from high tech to financial markets – but it is just that. What’s is happening is not even a recession; definitely not the end of the world.

Recent Gallup polls report that Americans are no longer feeling exuberant, but certainly still feel comfortable. As to their satisfaction with America’s quality of life, 33% said they were very satisfied and another 56% somewhat satisfied. Economic conditions in the country were found good or excellent by 67% of respondents; 63% judged that they would be better off a year from now; 73% reported that they were unworried about losing their job. They are right. Unemployment will rise to 5% at most. Six months from now the economy will be out of the doldrums.

After a 5 year boom with over 4% growth, the US economy has slowed to almost zero. The impetus for this slowdown was, as always, the Federal Reserve. No period of expansion in the US has ever just fizzled out. They all were killed by the Fed, and for the same reason: fear of inflation. Things were different this time though. The Fed acted preemptively while inflation was still very low. As a result the cure can afford to be much milder – a moderate rise in unemployment and a brief pause in growth rather than a full blown recession with massive increases in joblessness.

So far, that plan is on schedule. True, the disappearance of growth is abrupt and more drastic than a soft landing; the carnage in high tech is pretty awful. For a moment there was real fear of a real recession. But all that is giving way to the question of what comes next. The answer, obviously, is recovery and expansion. Inflation is in check. It is time to work on the upswing.