John H Armstrong

Is the Economic Recovery Real?

The reports of the last economic quarter are now in. Evidence exists that we have experienced a recovery for the first time in four quarters. Anyone in their right mind ought to celebrate this fact. I suppose most Americans do take some comfort in this report, unless of course they so despise this president that they want to see an economic collapse on his watch. I find such people uninteresting and terribly angry, qualities that repel me personally. While I do not agree with a good number of the president's economic policies I pray for him, and us, that he succeeds. The country has always found a way to move back to the center regardless of who the president is at the time. I expect this will happen again over the course of time but the radicals on both sides need to be ignored on the whole. 

The new reports says that the economy rose by 3.5% in the third quarter. That is the good news. But the bad news is that government aid from tax credits for homes, and rebates for auto purchases, are both temporary. Economists generally believe that consumer spending will decline without this federal help. Will buyers back off in the face of rising joblessness and very tight credit?

Look, this recovery is extremely fragile no matter how you view what prompted it. The White House spins it positively, as they should, but there is very little room here for huge cheers. Most Americans, and I am one of them, have yet to feel any real benefit from a recovery at all. I have a job, for which I thank God, but I am making far less than I was 18 months ago and far less, in real dollars, than I was five years ago. It seems that job losses are declining but they are still very real. This is no time for economic giddiness to say the least. The value of our homes remains much lower than before the summer of 2008 but then many of us had hugely over-priced homes during the years just before the recession hit. Anyone who used their home to try to make a profit was using it unwisely in the long run. The last I checked you bought a home to live in it.

The president struck a responsible chord when he said that this report was "welcome news" but added, "We have a long way to go to fully restore our economy.

By the way, the four straight quarters of contracting economic activity is a record streak. Is this the gentle calm before another storm or is a real recovery, albeit a small one? We simply do not know yet. Gloom and doom folks assure us the worst is yet to come. Few are truly optimistic. My greater concern is the way we are spending federal money to try to get out of the recession. Who pays the bills? And now that we are on the verge of a health care bill being passed that reaches nearly 2,000 pages what next? While I welcome health care reform I do not welcome massive speculative spending by the government on a program that is almost sure to make things worse in the end. By the way, I do not work for the insurance companies, own no stock in them and have no rich friends who run them. I have had my own battles with health insurance companies like most Americans. I do not like our present system. This is very likely the one thing massive numbers of us do agree on.

I read the various non-political takes on the health care bill this morning. Here is my amateur take on it all. We don’t know what we are getting in this legislation. Democrats clearly want to get government into health coverage in a huge way. Republicans clearly do not. The Republicans did nothing to fix the problems for six years (2001-2007). The present House bill cuts Medicare over the ten years following 2013. Personally this hits me in the gut but I am frankly willing to be hit if I feel it is truly good for everyone else. This is not about what is best for me personally. I think this is the bigger issue for most of us. It seems the majority of Americans want to know "what’s in it for me?" I honestly do not start with that question though I do ask it when a national debate like this rages.

I said to my wife this morning, after my reading the various non-partisan reports, “It seems this House bill will make things worse for us.” We worked hard to get out of a huge monthly payment for health insurance last year and then set up a Health Savings Account (HSA) in the process. I must tell you the HSA is the best kept secret in the whole debate. It has helped us reduce payments almost by half and in the end we came out with better health coverage. Yet I hear almost nothing about this program in the debate. Is this because it is not what the Democrats created? It sure seems that way to me. So few people use this provision who could and this amazes me personally.

So what do we get with "almost" universal health care? (The Democratic leaders say 96% will be insured!) Medicare cuts do seem obvious. This is why the elderly fear the program. But there seemingly is much that is worse in the details. Who pays and how? Worse yet, who administers and at what cost? And how efficient will the administration be if the federal government is involved? Anyone ever dealt with the post office or social security in any significant way? We have some answers to these questions but again few talk about them. Several states have passed health care bills. The truth is they are still trying to work out the "bugs.” There are positives and negatives. Incrementalism is always to be preferred but Democrats tend to want everything at once, especially while they have the power to do it at their fingertips. 

Perhaps it is my lingering fear about federal programs I have known for 60 years but I simply believe the best government is that which is the most local. This is true precisely because it is a government that answers the most directly to the people being governed. As a simple principle, rooted in my Christian worldview, I believe the government that governs the least (from the top down) is the best government. I think history also supports this conclusion. This does not mean the federal government does not respond to crisis and national emergency.

The idea that somehow I am among those tight-fisted conservatives who do not want to help the poor and the weak among us is a myth I ardently reject. My problem here is simple: Is this involvement of the federal government the very best way to help the poor? I am very unconvinced that it is by what I read and understand. And there is a long history of evidence to support my concern.

Either way please do not tell me I do not care about the plight of the poor. What the poor need, more than anything else, is a good job, better education and the opportunity to truly advance if they desire it and are willing to work hard and be smart in their actions. They also need the church to become more involved in teaching, helping and serving them. The great gains of the Reagan-Bush-Clinton era may be thrown away in the near future. (Note: I do not include George W. Bush in this point since I do not think he handled the economy well on several fronts.) I have grandchildren. I look at these two precious girls and wonder if they will have the same opportunities that I had. This troubles me.

But make no mistake about it. At the end of the day I am not worried for my granddaughters at all because their parents are giving them what no prosperity in America could ever provide: a Christian worldview that understands how to live for the glory of God in any time and under any government. I ask: Is the church really preparing people to live, in plenty or in want, for the times ahead? I would have to say no from all that I can see. This, for me, is the far greater issue before us now and long after President Obama is out of office.

You Build Trust By Trusting

A key to any business, and its economic success, is building trust with both its employees and its customers. The world financial markets nearly collapsed last fall because people in the financial industry lacked trust. Credit almost stopped flowing. Even the biggest banks refused to lend to each other because they were not sure they would be repaid. This is the way Dov Seidman, the founder and CEO of LRN, sees it. LRN is a company that helps businesses develop ethical corporate cultures. Seidman is also the author of How: Why How We Do Anything Means Everything . . . in Business (and in Life). Seidman believes we went through a time in which we took trust for granted. But this all changed last year.

Trust is absolutely essential if long-term enduring relationships are to be built in any area of business. It drives risk-taking and this leads to innovation and progress. But how do you gain this trust, especially when it has been lost? Siedman writes, "It doesn't hurt to be honest and ethical." Christians, of all people, should resonate with this observation. But what many will not resonate with is Seidman's observation about how to get trust. He says, "What most managers don't get, though, is that the best way to build trust is to extend it to others."

Read that quote again. If you want trust you have to show trust. Seidman gives a few simple examples when he writes of a donut shop in New York where the owner decided to let customers make their own change from coins left on the counter. The result was he was able to serve customers faster and they appreciated his shop all the more. He won loyal trusting customers and left his competitors behind.

Netflix, the widely known film rental company, allows its employees to take vacation whenever they want to and feel the need. And they have no "x number of vacation days" in a year. (There policy says there is "no policy of tracking.") What they do measure is results. There policy is freedom and responsibility. There policy on entertainment, expenses, travel and gifts is only five words long: "Act in Netflix's best interests." I find this amazing in our modern business climate.

The rock band Radiohead recently released a new album online for free, trusting fans to decide how much to pay. (Anyone remember Keith Green and how the Christian industry reacted when he did the same with free albums?) Radiohead says it has generated more revenue with this new approach than with any previous album they have released.

But the most amazing such story of all is the one about the University of Michigan Health System. It encourages doctors to apologize when they make mistakes, trusting patients to forgive them. They openly risk legal liability in the process. The number of malpractice suits has dwindled, and other providers are now adopting this same approach.

Seidman's own company, LRN, encourages employees to file honest expense reports. To do this they did away with tight oversight and require no pre-approval for airfares, etc. The result has been a decrease in money the company spends.

LRN seeks to inspire trust and high performance. To accomplish this they saw a need to let some people go. They extended this principle of trust to people who were being laid off and the results were rather astounding. People were allowed to have a say in the timing of their leaving and they were encouraged to take their laptops and cell phones with them. No one was asked to sign a waiver so as not to take the company to court. Outside legal counsel told Seidman not to follow this course. When former employees were surveyed 85% said they agreed with the company decision to let them go. The result? LRN is a "far more unified company now."

Seidman says managers have "lots of tools for getting what they want out of their people, most of which fall into two categories: sticks and carrots. But to inspire employees to actually care, managers should judiciously put their own trust to use."

This is an amazing story. But it is precisely what the church ought to be doing in leading the way during these challenging times. As disciples of Jesus we ought to empower people to pursue what God has placed in their hearts and then help them through our support and challenge. If pastors and church leaders really trusted their congregation (and each other) I wonder what would happen? Here's a great idea: Make trust a key element in how you treat people and build a relationship that truly helps you to manage the work of the ministry more effectively. I think I will promote this concept widely in the months ahead.

Why Spending More Federal Money Is a Truly Bad Idea

I have said on several occasions that I am not a trained economist. I do not understand all the debates about theories and systems and frankly think most of our politicians do not either. I have also said that I think the most refreshing moment of honesty in the last presidential campaign was the most politically damaging. I refer to John McCain's admission that he did not understand the economy that well. The statement killed him but it was a rare moment of honesty almost never heard from a political candidate.

One thing I do understand. When revenue decreases spending should decrease. I took a 25% salary decrease twelve months ago. My wife and I have managed but only because we changed our spending habits rather dramatically. It has been a challenge but we've managed on a lot less. We've done less of those things that we enjoy and more careful accounting for every dime we receive and spend. It just makes sense. Everyone, including non-economists, can figure this out, or at least should be able to figure it out.

The problem is that the federal government, namely the president and Congress, cannot figure this one out. A report from the treasury reveals what we all knew was coming. This recession is starving the government of tax revenue. The numbers are stark. Tax receipts are on pace to drop 18% this year, the biggest single year decline since the Great Depression. At the same time the federal deficit will rise to $1.8 trillion.

Here are some more bleak numbers. Individual income tax receipts are down 22% and corporate income taxes are down 57%. Social Security is in trouble too. Receipts will drop for only the second time since 1940 and Medicare taxes are on pace to drop for only the third time ever. The last time the numbers were this bleak was in 1932, right in the middle of the Great Depression.

Our tax system is woefully inadequate to support the promises our federal government has already made. But at the same time the president and Congress are spending new money as if it grows on proverbial trees. The solution they offer, so far, is to print more money, which only makes matters worse.

I am not an apocalypse soon guy but a financial meltdown is almost sure to come if we keep this up. I understand the desire of Congress to reward various constituencies but when will they consider the next generation. My generation ("the boomers") now lines up asking for the biggest pay-out in history and expects the next generation to foot the bill. Someone will pay the piper. It is inevitable. It seems few politicians understand and very few people care.

William Graham Sumner on Economics

William Graham Sumner (1840-1910) was an American academic and a professor at Yale. He was born in Paterson, New Jersey, and graduated from Yale College in 1863. He was appointed to the newly created Chair of Political and Social Science at Yale and made his name as a sociologist. His major accomplishments were developing the concepts of diffusion, folkways, and ethnocentrism. Sumner argued that government-mandated reforms were generally useless. He was a staunch advocate of laissez-faire economics and was active in the intellectual promotion of free-trade classical liberalism. One of his most brilliant quotes is well worth thinking about at the present time:

The type and formula of most schemes of philanthropy or humanitarianism is this: A and B put their heads together to decide what C shall be made to do for D. The radical vice of all these schemes, from a sociological point of view, is that C is not allowed a voice in the matter, and his position, character, and interests, as well as the ultimate effects on society through C's interests, are entirely overlooked. I call C the Forgotten Man.

The Forgotten Man became the title of Amity Shlaes controversial treatment of the New Deal and the Great Depression. It is a marvelous book that deserves more serious readership among non-academics who want to understand why the New Deal did not actually turn the economy around as commonly believed. If the New Deal did not actually accomplish what many tell us it accomplished why should we dig ourselves more deeply into the same hole in the present time?

A Great Blog Site for Conservative Economic Thought

My good friend David Bahnsen is one of the finest conservative thinkers I know. He has a rigorous mind, is a keen observer of trends and developments in the market and understands monetary policy. He also stays on top of global trends. I do not always agree with David but then I disagree with everyone at some point. If a guy only writes what I agree with I find him boring and thus not worth my time. David is never boring, never. He has a new Web site that I urge you to check out.

http://www.davidbahnsen.com/

David is presently reading and reviewing the major books published about the 2008 economic meltdown. Our mutual friend Andrew Sandlin has said of David's writing: "His hard-hitting articles unceremoniously peel back the thin, fuzzy veneer of protecting much of today's lame mainstream economic opinion." I concur.

A good example of David's thought can be found in a recent article titled, "What Kind of Conservative Are You?" Even if you disagree you too will be challenged.

David is a senior vice president at Morgan Stanley and writes a regular column on economics and business for both World magazine and Red County online magazine. He also served on the board of ACT 3 from 2007-2009.

Medical Debt

I am quite suspicious of a federal system that solves our medical and health care crisis. I am not suspicious that there is a real crisis but I am very suspicious of the solutions that I hear being offered by the president and the congress. It is not that there are not solutions that we need to pursue. The question is whether or not the federal government can establish a program that works and then can be paid for in an efficient and prudent way. The history of what the government has done with Social Security is all the proof I need. The system will be bankrupt in a few decades and hardly anyone seems determined to fix the problem. So Bush had a bad solution. Did the opponents have any at all? During the Clinton era the Democrats argued for fixing the problem and then when they opposed Bush they said everything was just fine thank you. In general both parties, but the Democrats in particular, would rather create another huge entitlement and then leave the debt to the next generation.

Make no mistake about the problem. A team of U. S. researchers form Harvard Law School, Harvard Medical School and Ohio University recently reported the following in the American Journal of Medicine.

1. 60% of bankruptcies in the U. S. are due to medical bills. 75% of these bankrupt families had health insurance but still were overwhelmed by their medical debts.

2. 92% of medical debtors had debts of more than $5,000.

3. 25% of firms cancel coverage immediately when an employee suffers a disabling illness; about another 25% do so within a year.

4. 15% of the U. S. population would be left with no coverage if the current overhaul of the health care system was installed.

Remember, none of these figures come from a politically partisan source. The two biggest issues here seem to be: (1) medical debt crushes some people in the U.S. and, (2) the cancellation of coverage is a huge issue. It seems to me that these two problems could be fixed without making the federal government the source of fixing every other problem in the system. Changes in supervision and monitoring could address these two issues without deepening our federal debt in the process. It all seems simple but the congress has a way of making the simple into a huge new problem once they work out a bill and turn it into law

I expect that we will continue to hear numbers cited from every side arguing that their case about the health care issue is right. The question does seem to come down to this: "Who do you believe and why?" Reagan once said that the worst words that you could hear were, "I'm from the government and I'm here to help you!" I do not doubt that government can help, in some limited and clear-cut cases, but administering a huge program to solve the bigger health crisis does not seem to be a sound solution from all I can see. I simply do not trust the government to do this efficiently and with fiscal integrity.

Friederich Hayek on the Economy

One of the more formidable voices in economics was that of the late Friederich A. Hayek (1899-1992). In his classic, The Constitution of Liberty (1960), he argued that progressive taxation does not accomplish what most people believe. Taxing the wealthy at higher rates, in order to provide for larger government spending for the poor, does not obtain the desired goal according to Hayek. Hayek said: “Not only is the revenue derived from the high rates on large incomes, particularly in the highest brackets, so small compared with the total revenue as to make hardly any difference to the burden borne by the rest; but for a long time . . . it was not the poorest who benefited from it but entirely the better-off working class and the lower strata of the middle class who provided the largest number of voters.”

Hayek believed, as do most fiscal conservatives, that in principle the progressive tax is a political issue more than a tax issue. In theory it sounds like it is fair for the wealthiest few to help the rest of us but sharing their income in certain managed ways but in practice this is simply not what actually happens. This argument seems counter-intuitive until you actually examine both revenues and the history of what the progressive income tax has done to our nation’s ability to generate larger sums of revenue through higher rates of taxation.

The largest number of Americans seem to believe that raising taxes on the rich is good for all the rest of us but remember that the definition of “rich” gets changed as things move along thus before long the tax rates filter down to most middle class people too, in various ways that are not all rooted in taxes. The real loser could be the small business owner who is the backbone of any economic recovery. I do not debate the question of “stimulating” the economy by creating bank liquidity but I do believe a wholesale government spending spree will not have an overall positive impact on our economy. Why? There is no real proof for this conclusion.

One of the greatest downsides to this approach is the way it kills the incentive of the very wealthy to create new jobs, to spend large sums of money on new capital ventures and thus to raise the boats of all of us in the process. The myth that often supports this theory is the one which sees the whole economy as a finite pie. There is only so much pie and we must more evenly share the burdens and the benefits of that pie. But what if we can make a larger pie? The truth is that we can and we have and this is part of the greatness of America.

The solution, it seems to me, is not to reduce the pie but rather to better regulate corrupt practices of some and enlarge the pie at the same time. Hayek also believed, and I think demonstrated, that progressive taxation tended to push the worst people to the top and not the best people. Maybe we had better rethink the class warfare danger that promotes so much through more taxation before we remake society along class lines.

The Recession and Christian Missions

The economic recession has hit many of us very directly. I do not particularly welcome the loss of income or the attendant problems this has presented to me. But I believe God is at work in these difficult times in renewing the faith, hope and love of his people in so many ways. I have seen this firsthand in my own life and in the lives of several of my close friends. ACT 3 has suffered some loss of income but God continues to provide for us day-by-day. I am learning again to trust him as I did in the early 1990s when we were in our infancy as a mission.

Many of you share in supporting this mission financially. Your gifts are vital to our work. I am as thankful to God for your gifts as I have ever been. I try to make this gratitude know as personally as possible but to those that I do not know personally please know that I am grateful for you too.

The Evangelical Council on Financial Accountability (ECFA) member missions recently reported that their fourth quarter giving was close to what they received in the same quarter in 2007. 72% of the organizations reported that they actually exceeded, met or came within 10% of their fourth quarter giving in 2007. But 28% said they fell more than 10% behind 2007 giving. (ACT 3 is in the 28% category.) The number one method that organizations said they used to work at keeping donors involved was increased personal contact. More than 30% reported that they changed their messaging to donors.

Overall, the economic conditions have not negatively impacted most of the member organizations of the ECFA, at least according to a report issued last week. Most ECFA missions stated that they let their donors know they needed their support more than ever.

On the spending side 41% of ECFA organizations have frozen or delayed salary increases, while 38% have frozen or reduced hiring. 53% cut travel and conference expenses, while 30% delayed capital projects. 22% have partnered with other organizations, or businesses, to find additional support.

ACT 3 has cut salaries (our staff consists of two full-time and one small part-time salary) and cut travel and conference expenses dramatically. We are also attempting to partner with others to meet some  of our needs.

The ECFA survey suggests the following:

1. God's people are generous even in times of economic decline.
2. Organizations are focusing more on core ministries in this recession.
3. Ministries are generally resilient as they place their priority on balancing expenses.
4. It is a new time to trust God and give thanks.
5. It is time to put more focus on prayer, prayer for donors and prayer for ministries.

If you are a donor to ACT 3 thank you. If you are not we could use your help, even if it is a very small gift. You can go to ACT 3 online to sign up or make a one-time gift.

Will the Stimulus Bill Save Real Jobs?

As President Obama touts his financial stimulus plan, and lawmakers almost completely follow party lines on approval, what are we, ordinary economically challenged Americans, to make of all this? One thing is for sure, we have our own views, and some of them are very passionately held from what I read and hear. But most of us are not qualified economists. We instinctively realize that something could be worse than nothing, though the mood seems to clearly be that the government must do something. The polls are all over the place, suggesting deep suspicion about this plan. I would remind you that something like this was promised by candidate Obama and the country then elected him based as much on these plans to save the economy as for any other reason. Now that a majority seem to question his plan this underscores again how fast one's political popularity can shift even if the president is wildly popular on inauguration day. Time will tell, like it does in every political decision that a president makes, and the country's response will certainly be a long term one. This is both the greatness and the frustration of our electoral system.

Like many of you I have tried to figure all this out by reading and listening. I have no keen insights to offer this morning except perhaps those of a non-professional who hopes for the best but retains a grain of cynicism about this plan. Weekend papers fueled my cynicism by reminding me that no matter what Congress and the president do businesses will keep cutting workers and the jobless rate will keep rising in 2009. There is little doubt that we are in for the deepest and longest recession since "The Great Depression." It could be much worse but we know now that it is very bad. I have already been involved in a decision-making process that involved closing a non-profit organization and I expect there will be more such decisions in 2009. While ACT 3 is not directly threatened we have lost money and cut salaries by 25% and still face hard times. One reason that I expect we can survive as a mission is because we do not depend on foundation grants and huge donors for our day-to-day operation. In fact it is just ordinary people, people like those of you who reading this blog regularly, who keep us going.

My Friday morning paper had comments from our four area members of the U.S. Congress. My congressman, Peter Roskam (R), a solidly conservative Republican in the seat once held by the well-known Henry Hyde, said, "It could have been much better. You just can't borrow and spend your way into prosperity." I think that sums up why many of us, like me, seriously question most of this stimulus plan. U. S. Representative Melissa Bean (D), another leader from suburban Chicago, said, "It puts money where it really does matter, and that's what you're looking for in a stimulus bill. You need to be broad and bold and swift, and this does that." But the promoters of the bill admit that it will not turn things around swiftly. Even the president is warning of a long down-time and slow recovery. U.S. Representative Judy Biggert (R), another suburban member of Congress, adds (photo right), "My constituents don't want to pay for all this spending. What this economy needs now is a shot of adrenaline, not a bunch of long-term projects."

I am persuaded that Biggert is fundamentally right. A "shot of adrenaline" would include the kind of tax incentives that would free up money and create new investment in the private sector. There is only some of this in the bill. I do not think government has no role at all in this recovery but I fear the government has taken on the wrong role. I am not going to prophesy gloom and doom but I seriously wonder if this bill will change the big picture. I have no doubt that it offers some help to the weakest and poorest among us, for which I believe we should offer help right now, but will it create the jobs and economic confidence that rebuilds the infrastructure of our economic well-being?

The most fascinating comment of all came from Congressman Bill Foster, a first-term Democrat, from the suburban district to my west that was once represented by the Speaker of the House, Dennis Hastert (R). Foster said: "You'll not know that its successful for many years, and you'll in fact never know that it's successful. One of the difficulties of actually being responsible for government is that you're never given credit for disasters that are averted. We'll never know if it was true or not, and we'll never be given credit for stopping that disaster." That is one of one of the most candid comments I read.  Perhaps Foster (photo left) is being honest precisely because he was elected in a district than still leans heavily toward the Republicans. One thing is for sure---great minds and great economists disagree. What we do know is that we are all in for a harder time in the year ahead of us. As a Christian I intend to thank God every day for what I do have, not complain over-and-over about how bad things have become. I also want to offer real hope to those around me. To this end I intend to increase my help for others as much as possible. I believe this is the least I can do to live out my faith in such as time as this. Trashing motives on the various sides of this great debate will feed or help no one I know in particular. The bill has passed and now we must simply wait and see. Christians should not be cynics or fatalists. If the bill fails, over the long haul, the people will respond in elections just as they did last November. Let us pray, love others and truly serve the poor, and unemployed, as much as possible. I am praying that our churches turn to real concern for those in actual need above caring for their institutional needs first. This means they must put in place actual plans to help their people. This is a great moment for the church to be the church and thus for renewal to begin in our local congregations.

Why Does Recession Happen?

The talk of a prolonged recession is on all our minds these days. Though there is no "official" proof that we are in a recession yet, since it requires two consecutive down quarters to establish a recession, there is no doubt that we are presently in one and that the results of this one will be deeper than any most of us have ever known. Unemployment is rising every month, consumer confidence is in a virtual free-fall, and spending is down. In an economy in which 70% of the action is found in sales this is a very bad sign. So what makes an economy go into such a recession?

The National Bureau of Economic Research, a nonpartisan body of economists, determines the official start and end dates of a recession, using a range of data. The bottom line, no pun intended, is that a recession is a prolonged and significant decline in economic activity. These declines will be seen in personal income, employment, production, and sales. The simple fact is that all economies go through boom and bust cycles.

Recessions generally result from excess capacity, thus when supply exceeds demand we are in a recession. When the economy is growing then businesses build factories, buy more inventory and hire more workers. But business has a way of misjudging long-term desire on the part of consumers so when anticipated demand begins to decrease the economy shrinks. Businesses responds by cutting back; e.g., purchases, workers and investments.

Most economists agree that our present problem stems from excess housing, which then drove the prices of all our homes down. Dropping home prices then had a deleterious impact on the rest of the economy. Some suggest that we will need one month of a down turn in the housing market for every month we boomed to get back to a normal place. This would be about 30 months if my general sense of things is accurate. (Please do not hold me to this number. I am not an economic prophet!)

But what about the markets? Markets do not always fall when the economy weakens. When FDR became president in 1933 the economy was in a shambles but the stock market was already growing again, having rallied by 30% from its low in 1932. Markets often anticipate downturns and fall just before a recession. This being the case the large market drops in September-November make economists quite sure that what follows is a really deep recession. But in October of 1987 we had a huge drop in the Dow only to see the economy remain strong until much later on.

How long will this current recession last? Could it become a Great Depression? As long as we've had market economies, since the mid-1880s, the U. S. has suffered 32 recessions! One of the worst was in 1873. The economy boomed following the Civil War but then a real estate bust in Europe led to the collapse of the largest U. S bank, sending shock waves through Wall Street. This recession lasted for more than five years!

Every recession is not launched by a market drop-off. The 1990-91 recession was begun by the end of the Cold War and the battle of first Gulf War. The defense industry contracted sharply and defense-related jobs were lost, along with manufacturing and exports. The national economy shrank 1.3%.

The worst modern recession was in 1980-82, following the Jimmy Carter era. Unemployment exceeded 10% for the first time since the Great Depression. The Midwest and industry were hardest hit. Steel lost 30% alone. Inflation also rose to levels around 20%. I still recall the term "stagflation" coming into vogue during this time. I remember it as the worst time, at least for me personally.

So what constitutes a depression? If a recession lasts for more than two years, with unemployment at 25% or higher, it's designated a depression. Since 1900 we have experienced only one--the Great Depression, which spanned the entire decade of the 1930s. This is why my parents always responded to money and economic hardship the way that they did. They were teens and young adults during those years and gained their values and lessons through such a difficult decade. Most believe the Great Depression ended only because of World War II, not because of government intervention in the economy. (I agree with this view and believe that it can be convincingly argued.)

Are recessions getting worse? The 22 recessions recorded prior to World War II lasted an average of 20 months. The 10 recessions since have averaged half that time. A major reason for this is that the Federal Reserve has gotten better at stimulating the economy when it starts to decline. This means, in simple lay terms, that the government pumps money (liquidity) into the economy. The truth seems to be that recessions have been milder since World War II but so are the recoveries. After the 2001 recession we had what has been called a "jobless recovery." This may be why many never acknowledged the strength of the economy during most of the Bush presidency.

It is here that the media plays such a huge role in the modern age, but one that is hard to fully grasp. Consumer confidence is either weakened or strengthened by the daily reports of the economy. I get the sense that most people think the economy has been really bad for eight years now. The way the media reports this economic news has, to some extent at least, impacted how we all feel about our economy. I know people who think that the last eight years have been horrible economically. Looking at the big picture this has quite simply not been the case. In this instance the way we hear this news impacts what we actually do with money and how we perceive what is happening around us.

So how do recessions finally end? Businesses start hiring again, consumers feel more secure and begin to spend again. Such recoveries vary but they all have these basic elements. Some recoveries include further dips, thus looking like a W, while others are more L-shaped. The way to avoid a long-term downturn is to use federal stimulus. Warren Buffett expresses it this way: "There is only one institution in the world that can borrow enough for long enough to counteract all those recessionary forces. And that's the United States Treasury."

How much do our presidents impact these recessions? My answer is very little. They can do reasonably good things to help the recessions become shorter but they can do almost nothing to stop them. This is a major reason why I find it almost amusing that both parties have used recessions to gain political power. Reagan used it to defeat Carter, Clinton to defeat George H. W. Bush and Obama to beat McCain, who was seen as a third-term Bush.