The Economy: Heading into a recession?

A “dismal” new jobs report makes it official, said Paul Krugman in The New York Times. “The Bush boom, such as it was, has run its course,” and Americans now face the prospect of a recession. The Labor Department announced last week that contrary to expectations of modest growth, the U.S. actually lost 4,000 jobs in August, the first employment drop since 2003. The fact that the economy is now running in reverse puts a lie to the Bush administration’s central article of economic faith: that by lowering taxes on the rich and corporations, the economy grows and all Americans benefit. Corporate profits surged 72 percent over the last four years and the income of the richest 0.1 percent jumped 51 percent in just two years—while wages for average Americans were stagnant, and health-care benefits were cut. In “trickle down” economics, prosperity at the top is supposed to help the rest of us. Now middle-class Americans are wondering, “Where’s my trickle?”

There’s less to the job dip than meets the eye, said The Wall Street Journal in an editorial. The decline “was rooted in the continuing housing bust,” with the big losses coming in construction and related manufacturing. The rest of the economy continued to add jobs—an indication that the damage of the credit crunch may be limited, and that any talk of a recession is premature. We hope so, said Investor’s Business Daily, but there’s good reason “the R-word” is on so many lips. Turmoil in the housing sector is a big deal: Housing accounts for more than 6 percent of the gross national product, the highest percentage since 1951. “When it hurts, the economy hurts.” That’s why it now “almost goes without saying” that the Federal Reserve next week is going to cut interest rates to loosen the money supply, encourage borrowing and spending, and rebuild consumer confidence.

Pumping more cash into people’s pockets might be popular, said The Economist, but the central bank should let the economy sort out its own problems. Otherwise, consumers, companies, and investors come to think they will always be bailed out of their bad choices, including the one to go deeper and deeper into debt. A recession isn’t fun, but it’s all part of the natural economic cycle. “After such a long binge, might the economy not benefit from a cold shower?” That may sound fine in theory, said the Portland Oregonian. But if “you’re the one who’s under water,” a year or two of joblessness or bankruptcy hardly sounds like a healthy corrective.