Loosen Up, Alan

GROSS national product figures released last week brought a touch of cheer: They showed the US economy starting to grow during this year's third quarter, after three quarters of decline. But the rate of recovery, 2.4 percent, fell far short of historic post-recession advances. On top of this, unemployment last month edged back up to 6.8 percent.Consumer spending - the economy's primary engine - had revved during the summer. But it was showing signs of sputtering in October. Most analysts attribute this to concerns about future employment, concerns bolstered by the latest figures. There's also the long-term slippage in Americans' disposable income in real terms. Take-home pay fell by about 7 percent over the last decade. Still, people had no trouble spending their money during much of the '80s. Why the crisis of confidence now? Economists have varied answers - and some admit they have no answer. This recession has hit white-collar as well as blue-collar workers. People who might normally have the income to afford new cars or appliances are as concerned about job security as lower-income Americans. That may be one reason consumer demand is so low. Another could be a general lack of faith in the way the economy is being managed in Washington. Political leaders in the capital have been launching tax-cutting proposals of late. To his credit, President Bush has tempered his own enthusiasm for tax measures, recognizing perhaps that once that door is open both Republicans and Democrats on the Hill are likely to rush in and topple the fragile fiscal equilibrium created by last year's bipartisan budget agreement. That agreement will doubtless be reworked, but it shouldn't be razed by a pre-election scramble for tax-reduction laurels. The most sensible step for government is a further loosening of the money supply by the Federal Reserve. Fed chairman Alan Greenspan's assessments of the economy have been increasingly gloomy. He appears ready to bring the prime rate down another quarter or half a percentage point. Earlier interest-rate reductions haven't yet invigorated the economy. But that's an argument for being a bit more daring, not for resorting to other means. Along with the loosening up of money has to come a loosening of the fear that's keeping consumers from spending, businesses from hiring, and bankers from lending. It's worth noting that still other economists think the present, very slow emergence from recession is on firm ground and should lead to greater economic strength, with lessons learned from the excesses of the '80s.

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