Economy Is Not Off Life-Support Yet
STEVE INSKEEP, host:
We're at the end of a year in which the federal government has made unprecedented moves to save the economy. And at the end of all this, we're sure of one thing - the economy is worse than when we started. David Wessel, economics editor of the Wall Street Journal, has been our guide through a dramatic year and joins us one more time. David, welcome back to the program.
Mr. DAVID WESSEL (Economics Editor, Wall Street Journal): Good morning, Steve.
INSKEEP: So why would the economy be getting weaker instead of stronger at this point?
Mr. WESSEL: It's a real puzzle, given all the things, as you say, that the government has done. We know now that the problem was much worse than we thought a year ago, and it's truly global in scale. We know that the financial markets refuse to function normally, which is a big surprise. We know there were some unattended consequences. The decision, for instance, not to save Lehman Brothers, the big investment bank in New York, set off a cascade of bad events. And then, it's as if we were in a manic euphoria before and now we're in a manic depression now, where everything is worse than we expected and everybody's depressed. And nobody's spending and nobody's lending.
INSKEEP: OK, so how bad could this recession get?
Mr. WESSEL: There are every signs it's going to be a very deep recession, at least as bad as the one of the early '80s, if not worse. Forecasters expect the economy to contract in the current quarter at five or maybe six percent. It will be bad, although not that bad, in the first quarter of next year.
They expect the unemployment rate, which is now 6.7 percent, to hit 8.5 percent or even higher next year. Companies are canceling contributions to retirement plans. Chrysler is shutting all 30 of its plants for a month. And this week the IMF's chief economist said that the contraction in global demand could exceed anything we've seen since the Great Depression itself.
INSKEEP: Well, David Wessel, I wonder what top economists or political leaders are thinking on this New Year's Eve as they look at the year ahead. Are people wondering if maybe they need to throw another trillion dollars in there?
Mr. WESSEL: Well, they're definitely are thinking that. At times like this, when the Federal Reserve has cut interest rates almost to zero, it's time to hand off much of the responsibility for rescuing the economy to the fiscal authorities, to the president and Congress, and that's why there's very strong consensus among economists that President-elect Obama is doing the right thing by doing a big fiscal stimulus to try and replace with government demand this diminished private sector demand.
INSKEEP: Let me get a sense of what people think is appropriate for the government to do at this point. We started out with aid to banks, of course that's now spread to the auto industry, and just this week we're finding out that the GMAC, this giant company that provides auto loans, is also getting help. How far can this go?
Mr. WESSEL: Well, Fed chairman Ben Bernanke has said, in so many words, whatever it takes to rescue the economy. The GMAC thing is interesting. It's a widening of this rescue beyond the banking system to this big finance company that has two goals. One is they're trying to get lending going again. If they can't get it going through the banks, they want to do it through these bank-like institutions. And secondly, the government has decided to save the auto industry, and this is part of that plan.
INSKEEP: But whatever it takes, I mean, what does that mean? Does that mean that they actually could do a bailout of Starbucks, it could be anything at all?
Mr. WESSEL: We have broken almost every rule and guideline and precedent so far in this crisis, and it's not over yet. I don't think they're going to bail out Starbucks, but frankly, I was a little surprised that they bailed out the auto industry.
INSKEEP: David Wessel, the Wall Street Journal, come back and see us in the new year.
Mr. WESSEL: I will. Thank you.