Recession Looms?

When was the last year America was in a recession? A) 2001 B) 1992 C) 1991 D) Today.

The answer depends on your definition of a recession, but if you use the common definition of two consecutive quarters of declining Gross Domestic Product, the answer is "C." America hasn't been in a real, honest-to-goodness recession since March of 1991, which, according to the business dating cycle committee of the National Bureau of Economic Research, was the end of the recession that began in July 1990.

That March 1991 date is significant for several reasons. The first is that by the November 1992 election, the economy under President George H.W. Bush had already been expanding for a year and a half. Contrary to the myth that President Clinton rescued the American economy by raising taxes and reducing the deficit — "It takes a Clinton to clean up after a Bush," is how Senator Clinton phrased it on the campaign trail the other day — the economy was already recovering well on its own before Mr. Clinton even took office, and it was that growth, not the Clinton tax increases, that diminished the deficit.

It is a point for the policymakers in Washington to remember as they scramble to craft a stimulus package to protect America from a "recession" that it isn't even clear we are in, no matter how determined the Democrats and even some in the press are to lay claim to it. "Recession Still Looms," blared a headline atop the Wall Street Journal Web site yesterday afternoon, right next to the chart showing broad indexes of American stocks gaining 2% on the day. The most important word in that headline is "Still" — the recession will keep looming until one actually hits, at which point, a recovery will be on the horizon.

The record shows America has survived previous economic slowdowns and emerged stronger, as big companies get more efficient and smaller companies grow to survive. Sometimes lawmakers are even inspired to make policy changes that shorten the recession rather than prolong it. But such changes are unlikely, because there's such a long lag between what is happening in the economy and when it is measured. It took the National Bureau of Economic Research until December 22, 1992 — after the election — to announce that the recession had ended in March of 1991. The same NBER announced the beginning of the 1990 recession on April 25, 1991— after the economy had already begun its turnaround.

The chances that Washington's actions will be timed to alter the business cycle are small. The real question is whether, by low taxes, sound money, and minimal regulation, Congress, the Federal Reserve, and the administration can create the conditions for American innovation and entrepreneurship to flourish in the long run, no matter where in the business cycle we happen to be. If we are entering a recession, it would be the first one in 17 years, which is a long time.

Mayor Bloomberg offered some useful thoughts along these lines last night in Washington, speaking of the need for an economy "where entrepreneurship is encouraged, where there is freedom to innovate." Said the mayor, "As a businessman who believes in the self-correcting nature of markets, I don't think we should bail anyone out." Refreshing words amid the burble of politicians tumbling over themselves to implement a vast Keynesian bailout of a boat they don't know has been holed.