Student Questions: Is the Recession Over?

BY Business Desk  November 9, 2009 at 12:25 PM EDT

Students in Salt Lake City; file photo

Editor’s note: This week, the Business Desk will feature questions from students in three high schools around the country.

Question: Because of the current economic conditions are we going to experience deflation or inflation in the future? — Kavion, senior, Central High School, Phoenix, Ariz.

Paul Solman: Beats me. “Deflation” is a drop in prices; “inflation,” a rise in them. Have you looked at the price of oil or gold lately? Rising. But what about wages? Housing? Clothing? All falling. The forces of deflation are consumers not spending, banks not lending. The forces of inflation are governments like ours creating more and more money. Right now, there’s a tug-of-war between the two forces.

Question: Some people are saying that the worst is over, that the recession is coming to an end. Based on what you see in the economy right now and on your knowledge of previous recessions, is such a prediction on track? Are there specific indicators that you can point to that show that the economy will improve in the fall of 2009? — Jacob, senior, Judge Memorial Catholic High School, Salt Lake City, Utah (pictured above, in center back)

Paul Solman: In the late 1980s, I think it was, I heard Harvard economist John Kenneth Galbraith say what has been my answer to questions like yours, Jacob, ever since: “There are two kinds of economists,” Galbraith said; “those who don’t know the future, and those who don’t know they don’t know.” Like Galbraith, I count myself firmly among those who know they don’t know. And that’s because, with regard to human events, the future is unknowable.

But this sounds like a cop-out, right? Even if the future is just a matter of probabilities, a guy like me who’s covered economics for 32 years should be able to guess the odds better than a high school student, shouldn’t I?

OK, so here’s my best guess, though please don’t bet any money on it: We’re in for years of very slow economic growth. Unemployment will remain high by historical standards. The beneficiaries of what economic growth there will be? The top few percent of the economy, as has been the case for decades.

Why am I so gloomy? Because so much of our recent growth was built on borrowing and spending. Not only do I think many Americans have realized that’s not a safe way to provide for their future, but investors worldwide are less willing to lend to us.

Even you high school students must have heard the phrase about Americans: “We’re living beyond our means.” Well, what happens to an economy when the high living stops? Less spending; fewer jobs.