Is The Recession Over?

It was a year ago that the financial crisis took a devastating turn for the worse with the collapse of Lehman Brothers. A lot has happened since then. David Wessel of The Wall Street Journal tells Steve Inskeep that he believes the recession is over, but there are still some effects from the financial crisis.

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STEVE INSKEEP, host:

Of course, it's not only GM. The whole economy has had a rough year. It was last fall that the financial troubles turned into a meltdown with the collapse of Lehman Brothers, and all this week NPR has been looking back on the financial crisis.

We're going to talk now about how the economy might look in the future. We'll get some prognostications, careful as they might be, from David Wessel. He's economics editor for The Wall Street Journal, author of a book on the Fed's handling of the crisis called "In Fed We Trust" and, of course, a regular guest on this program.

David, good morning.

Mr. DAVID WESSEL (Economics editor, The Wall Street Journal; Author, "In Fed We Trust"): Good morning, Steve.

INSKEEP: So is the crisis over?

Mr. WESSEL: I think that's premature. The recession is probably over. The terrifying parts of the crisis seem to be behind us, the prospect that we're on the cusp on repeating the Great Depression. The stock market is now as high as it's been any time this year. But neither the economy or the financial system is anywhere near what we might consider normal.

INSKEEP: I want to ask about that, because I was talking to somebody who was around during the last really big recession in 1982. And she was pointing out that at that time the recession, while it was bad, it was accepted. It was assumed to be part of the normal business cycle. There was a fear here that we weren't in the normal business cycle. Are we back at least in the normal business cycle? Does it feel like we're in some normal pattern?

Mr. WESSEL: I don't think so. I mean the thing about that recession in the early 80s was that everybody knew what was causing it. The Fed had raised interest rates very high to stop inflation, and when you raise interest rates high enough you get a deep recession. But that meant when the Fed let its foot off the break pedal, put its foot on the gas, the car could move again.

Today, the Feds still has its foot on the gas pedal, yet the economy is growing painfully slowly. We have unemployment of over 9 percent and so on. So I think that we're in for a long period where the economy is making a change. The panic will subside, but it seems to me for five or 10 years many things will be quite different.

Look at Americans' attitudes towards saving. They didn't do any before the recession and now they're saving a lot. Watching their houses decline, their retirement accounts deteriorate, they've changed their way of lives.

INSKEEP: When you talk about five or 10 years of things being different, that immediately makes me think of Japan, which had a decade, as it's called the Lost Decade of hardly any economic growth.

Mr. WESSEL: I think American government, Central Bank, the treasury secretary and maybe even the Congress learned a lesson from that. And so, the U.S. government move much more swiftly to treat this economic illness, and as a result I think that our recovery will be better than theirs. And I think America is a more resilient economy. But I do think that people have misapprehension, misunderstanding of the economy. They think if you flip a switch the recession's over and it's not going to be like that, and that is a lesson of Japan.

INSKEEP: A couple of other questions about jobs, David Wessel. Elsewhere in this program we've heard from a former Wall Streeter, wondering if he's ever going to get back a job on Wall Street. We do hear about bonuses returning and so forth on Wall Street. But is the culture there or the economy there going to ever return to what it was?

Mr. WESSEL: That's a good question. I've been surprised how quickly some aspects of the culture have returned - the big bonuses, the sense that there's a sigh of relief and we can go back to business as usual. But I actually think Wall Street's going to be quite different. We know that there will be a lot fewer firms and the firms there seem to be a lot bigger. We know that the government is going to regulate them more severely, and that means many of them will be required to hold more capital, borrow less money, and make less money than they did before.

I think that there's a big question about finding a new role for finance in our society. I suspect in all, when you look at all the numbers in a few years out we'll discover that they're fewer people in finance, and few of those engineers who went to Wall Street to design these great securities that turned to be toxic assets, that many more of them and the kids coming along in college will end up in other professions because finance just won't be that attractive.

INSKEEP: David, thanks very much.

Mr. WESSEL: You're welcome.

INSKEEP: David Wessel is economics editor of The Wall Street Journal.

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