HICKS: Recessions end, with or without government help

Predicting when recessions start and end is tricky business. Typically, they begin at the peak of the business cycle.

So, the start of this recession occurred when
the unemployment rate was at near-record lows, the stock market was at a peak and virtually all other
indicators predicted nothing more than a moderating of economic growth. That was summer of 2007. Then
came a sharp rise in gasoline prices, which slowed the economy. Still, it took a full year for unemployment rates to inch
back to the sustainable level, and only a few other indicators suggested impending collapse.

To be sure, there were storm clouds on the horizon. Housing markets in a few key areas had slumped,
but the well-known Case-Schiller housing index, which has tracked these things for almost 20 years, revealed
this to be fairly common. On average, housing prices nationwide decline in alternate years.

In fact, during the first year of this recession,
the economy actually enjoyed a quarter of growth. The credit crisis of last September accelerated economic
decline that was broad geographically and sectorally. Virtually everyone everywhere could see signs of
the recession.

The recession
to date has been long. The length has been punctuated by some growth—at least one quarter out of the last year.
It has been deep, but not as deep as the 1981-1982 ordeal. Comparisons with the Great Depression are still common. However,
except for stock-market volatility, they are simply silly reminders of the power of perception over easily measured reality.
The next question is, when will it end?

There are far more than tentative signs the recession is already over. Leading and coincidental economic indicators almost
universally point to a turnaround having occurred sometime between March and May. Even lagging economic indicators, especially
labor markets, are showing some signs of recovery. Sadly, the unemployment rate can continue to rise well after the end of
the recession.

So what
has caused the recession to end? Recessions end, with or without government intervention. In this case, the effects
of the financial bailouts and the stimulus probably helped bolster confidence in a recovery. Otherwise, the effect of the
stimulus hasn’t yet been felt. And that’s the core of a new problem.

The worst is likely behind us, but that will prove scant reassurance to those of us who’ve lost
years of savings or a job. We want to know what the recovery will be like. I am afraid difficult times
may well lie ahead. They can still be avoided, but it will take uncommon wisdom, self-discipline and
courage from Congress.

A properly executed fiscal stimulus spends money during a downturn, but then moderates spending in a recovery. If that happens
over the next two years, we may well emerge from this to face a growing and robust economy. If we do not, we will inevitably
go through a daunting bout of inflation, then another recession.•

Hicks is director of the Center for Business and Economic Research at Ball State University. His
column appears weekly. He can be reached at [email protected]

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