If Things Are Getting Better, Why Are We So Miserable?

You have heard by now that the recession is officially over. Do you feel like celebrating?

Probably not. This week’s announcement from the National Bureau of Economic Research confirmed what we already knew, which is that the Great Recession has been over for quite a while – officially, now, since June 2009. The downturn that began in November 2007 therefore lasted 18 months, making it the longest U.S. economic contraction since World War II.

But, prolonged as it was, it was only two months longer than the contractions of 1973-75 and of 1981-82. Those were comparably severe recessions as well. Despite the hullabaloo about “worst since the Great Depression,” this was not economic Armageddon. Not yet, anyway.

The problem with this economic recovery is that it does not feel like much of a recovery. For a brief time around 1976 and early 1977, Americans really believed prosperity was back. “Stagflation” had not entered the lexicon.

In 1982 the mood was even more upbeat. A new law let me open my first IRA that year. Interest rates were sky-high to combat inflation, which meant I could have gotten a hefty yield just by putting my modest retirement kitty in the bank. Instead, I opted for the stock market – which began a historic rally in August 1982 that continued, with only brief interruptions, to the end of the 20th century.

Why were people so upbeat then? Looking back, it seems obvious that we were responding to incentives to save, invest, and rebuild the country’s wealth. Tax rates were headed downward. Businesses could quickly write off the cost of new plants and equipment. A commission, co-chaired by a Republican economist named Alan Greenspan and a Democratic senator named Daniel Patrick Moynihan, came up with a credible plan to keep Social Security solvent for more than five minutes.

We looked forward to the future because it felt safe to do so.

Jump ahead to today’s doom-and-gloom recovery. The end of the recession does not mean that “economic conditions since [June 2009] have been favorable or that the economy has returned to operating at normal capacity,” as the NBER’s report was quick to clarify. Unemployment is stuck not far below its October 2009 peak of 10.1 percent.

President Obama, in a town-hall style meeting about the economy, expressed sympathy with citizens still feeling the full force of the recession’s after-effects. “I can describe what’s happening to the economy overall, but if you’re out of work right now, the only thing that you’re going to be hearing is, when do I get a job? If you’re about to lose your home, all you’re thinking about is, when can I get my home?” he said on Monday.

The president is right that many Americans are still in financial pain, even if the recession is over. But what he may need to consider is the timeline that the recession’s June 2009 end date suggests.

By June 2009, most of the critical policy decisions directed at reversing the recession had already been made. The banks were stable, and the government’s stress tests in the spring of that year convinced outside observers of their stability. The country was reassured that nothing more severe was forthcoming. The Wall Street “bailout” had averted what would have been a catastrophic and tragically unnecessary chain-reaction of collapse. The banks soon returned nearly all their taxpayer money with interest.

Obama could have pointed, last year and since, to the government’s seat-of-the-pants but effective rescue steps as a great success. Instead, following the poll numbers and his party’s anti-business instincts, he treated it as a necessary evil.

The president could even have pointed to his administration’s intervention in the auto industry, or the fact that Congress had passed a stimulus bill to give the economy a much-discussed “kick-start.” Though a lot of people, including me, are skeptical that these were important elements in reversing the economy’s downward trend, or that they were worth the long-term costs, they were still steps in the general direction of recovery.

However it is measured, much of the government’s heavy lifting was done by June 2009. The business community began rebuilding its depleted inventories. If the economic outlook didn’t immediately improve, at least everyone believed that it wouldn’t get worse.

What the president does not seem to comprehend, however, is that much of what his administration and Congress have done since last June has been holding back recovery.

Continued bashing of the the financial industry has undermined the confidence that the stress tests helped rebuild. The health care overhaul left businesses staring at significantly higher costs, with no means to contain them. The president’s insistence on raising tax rates for the owners of the most successful small businesses is encouraging owners to hunker down rather than expand. This government is a thirsty camel, and business people know that Obama is likely to have to go to the well multiple times to keep it satisfied.

Martin Feldstein, a member of the NBER committee that determined the recession’s end date, worries that Obama’s plan to let tax cuts lapse for high earners could “slow the economy down and could push the economy into recession again next year,” as he told Bloomberg.

We ought to be thrilled that policy makers, inventing responses to unprecedented problems on the fly, were able to get us into recovery mode so quickly. The fact that nobody feels like celebrating is largely because we all worry that after scoring some early points, our government may yet find a way to blow the game.

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