Weak Unions Create a Strong Economy
Oddsmakers give the recession a short duration. Even dour Fed chairman Alan Greenspan has detected a few signs of early recovery. But not everyone is yet convinced.</br></br>Clearly, stock and bond investors have hedged their bets: All the averages are way below their optimistic thresholds. The bankruptcies of Enron, Kmart, Global Crossing and others have cast serious doubt about the sustainability of recovery. And lingering in the background is always the threat of another terrorist attack, Mideast war, or Third World currency collapse.</br></br>As Joseph Stiglitz, chairman of President Clinton's Council of Economic Advisors and later chief economist for the World Bank, warned way back in November, this recession might turn out to be the worst in 20 years. As Professor Stiglitz sees it, a deep recession like 1981-82 is the best we can hope for. In that 16-month recession, output fell by 12.3% and unemployment soared to a post-war high of 10.8%.</br></br>By contrast, in the 1990-91 recession, output fell only 2.3% and unemployment peaked at 6.5%. That is the kind of short, shallow recession the optimists are hoping for this time around.</br></br>Despite the spate of warning signs, the optimistic outlook still remains strong. The optimists' case rests not only on the usual array of indicators -- rising consumer confidence, abnormally low inventories, cheap money, and fiscal stimulus -- but also on a wild card few observers have noticed.