We’re in a recession, and the deficit is going to grow

We’re in a recession, and the deficit is going to grow

On Friday, President George W. Bush made a brief statement on the U.S. economy, acknowledging for the first time that the country is in a recession.

Saturday and Sunday, President-elect Barack Obama talked about the economic stimulus package his in-coming administration is working on. He said the package would include a massive public-works program to build roads and other infrastructure projects, but he hasn’t put a price tag on it. Nor did he say how it will be paid for, but clearly most of the cost will be inherited by our children and grandchildren — that is these programs will be paid for through deficit spending and the cost added to the national debt. That debt is already approaching $11 trillion, almost twice what it was when President Bush took office in 2001.

Short-term continuing deficits are unavoidable because of two classic responses by government during a recession. The first is to increase spending to make up for weak private spending. The second is to hold the line on taxes, or even cut taxes, which puts more money in the hands of the people, but less in government coffers.

This dynamic will certainly shape the first two budgets of the Obama administration. The two longest postwar recessions have lasted 16 months, and this one has the potential to evolve into the worst recession since the depression.

Dire prediction

Obama said over the weekend that the U.S. economy will get worse before it gets better. That’s not just a guess.

In using the “R” word, President Bush referred to November’s job data, which showed that the economy shed 533,000 jobs in November, far worse than anticipated and the biggest one-month loss of jobs in 36 years. More than 1.7 million jobs have been lost so far this year, bringing the unemployment rate to 6.7 percent. It is projected to climb as high as 8.5 percent next year, which justifies Obama’s pessimism.

Pouring money into construction projects that are on the boards and ready to go is one of the quickest ways of getting money circulating in the economy. If it works, it will have more effect than last spring’s stimulus checks, which may have done as much for China’s economy as ours. Highway dollars will be going to American companies that buy American concrete and (we hope) American steel. Of course if the construction workers use their pay checks to buy billions of dollars worth of imported stuff, the jolt the economy could get would be reduced.

The American people have to realize that it’s going to be more difficult for the nation to work its way out of this recession because the end result of so much of our consumer spending is more dollars leaving our economy. We ship money overseas as fast as other countries ship their products in.

Decades of such outflow are catching up with us. While we can start by rebuilding roads and bridges and making public buildings more energy efficient, we have to go from there to restructuring some of the fundamentals of our economy.