A recession by 1986? The all-important question
WASHINGTON officeholders, irrespective of party, do not like to discuss when the next recession is coming. For one thing, it's bad form to be prematurely gloomy, and politicians do not like to confront the ongoing realities of the business cycle. Yet the stakes make such contemplation important. What happens to the economy over the next two years -- a recession, or something unexpected and worse -- should have enormous consequences. More is involved than just another economic cycle. Conceivably, we are talking about the emergence or frustration of three highly significant potential watersheds: in economic policy, in the role of government, and in the relative economic roles of the two major parties. Economic ups or downs have not had those kinds of corollary mega-stakes since 1929.
Major transformations could develop if the Republicans can get through the next four years -- the next two years, in particular -- without a downturn. Several important trends could be set in cement: (1) federal tax simplification and budget reduction could proceed, and the United States could become the first economic power in modern memory to roll back tax brackets and the welfare state while it is still at moderate levels; (2) the federal government role could ebb, in the domestic economy, at least; and (3) the Republicans could replace the Democrats as the party of economic prosperity. Franklin D. Roosevelt's memory would give way to the immediacy of Ronald Reagan's success. A late 1985 or '86 slump, however, would erode the present euphoric view of Reaganomics. All three Republican policy ambitions would be undercut. Alternative, more activist views of government and public-sector responsibility would resurge.
Historically the odds are against the Republicans. Economic data for the Republican administrations since 1900 indicate that none of them got through four years without a recession, although several had downturns that were either minor or politically painless because of their distance from an election.
What's more, during the five Republican administrations since World War II, the GOP ``election-economic cycle'' has had a relentless regularity: Interest rates rise during the first year, and then a recession begins late during that same year. Economic pain, however, maximizes during the second year, derailing both GOP policy hopes and ambitions to consolidate party presidential-year advances in the midterm congressional elections.
John Godfrey, vice-president and economist at Florida's Barnett Banks, has charted the maturation of business cycles during the Republican and Democratic national regimes since 1948. Note in the accompanying chart how three of the four Democratic administrations have gone through their four-year regimes without recessions, while all five terms of postwar Republican presidents have seen the economy peak and head into a downturn within six to 11 months of Inauguration Day.
It's this record that the populist conservative, or ``supply side,'' wing of the Republican Party, led by Rep. Jack Kemp, disparages as old-line GOP ``austerity economics.'' Populist GOP stalwarts say they are changing this, embracing growth and opportunity with tax reduction, market economics, deregulation, and lower interest rates. Realistically, the jury is still out on the validity and political effectiveness of the new economics.
If the bold claims of the Reaganites and the supply-siders are substantiated by two or three more years of prosperity, their views of economics and government may dominate the '80s. But if the official US leading economic indicators, down in five of the last nine months, prove correct, the Republicans could see a recession begin this year. That would come neatly within the usual Republican ``election-economic cycle'' -- in time for the midterm elections and in time to submerge GOP ambitions in a swirl of popular economic skepticism.
Under the circumstances, the political ramifications of the 1985-86 business cycle can hardly be overstated.
Kevin Phillips is an author, commentator, and publisher of The American Political Report. Chart: Presidents and business cycles
Election Election Next peak Months after
year winner in cycle taking office
1980 Reagan (R) July 1981 6
1976 Carter (D) January 1980 36
1972 Nixon (R) November 1973 10
1968 Nixon (R) December 1969 11
1964 Johnson (D) None --
1960 Kennedy (D) None --
1956 Eisenhower (R) August 1957 7
1952 Eisenhower (R) July 1953 6
1948 Truman (D) None --