Recession: Why We're So Gloomy

"I haven't really been able to sort out exactly why there has been this degree of pessimism."

-- George Bush, Dec. 26, 1991

Well, why are Americans so gloomy, fearful and even panicked about the current economic slump?

At first glance the numbers don't seem so bad. The stock market went on a record-breaking rampage last month, finished 1991 at an all-time high, and kept setting new highs in the opening sessions of 1992. Inflation is at the lowest level in five years, and home mortgages are available at interest rates not seen since 1974. They may fall even further, thanks to the Federal Reserve's dramatic cut in the discount rate last month to a 27-year low. The official unemployment rate is nowhere near as severe as it was at the depth of the 1981-82 recession, and the contraction in the gross national product (so far 1.4%) has been far less sharp. "Ten years ago we would have thought this was paradise, and now we're whining about it," says David Wyss, chief economist for the consulting firm DRI/McGraw Hill.

"Whining" hardly captures the extent of the gloom Americans feel as the current downturn enters its 18th month. The slump is the longest, if not the deepest, since the Great Depression. Traumatized by layoffs that have cost more than 1.2 million jobs during the slump, U.S. consumers have fallen into their deepest funk in years. "Never in my adult life have I heard more deep- seated feelings of concern," says Howard Allen, retired chairman of Southern California Edison. "Many, many business leaders share this lack of confidence and recognize that we are in real economic trouble." Says University of Michigan economist Paul McCracken: "This is more than just a recession in the conventional sense. What has happened has put the fear of God into people."

In one of history's most painful paradoxes, U.S. consumers seem suddenly disillusioned with the American Dream of rising prosperity even as capitalism and democracy have consigned the Soviet Union to history's trash heap. "I'm worried if my kids can earn a decent living and buy a house," says Tony Lentini, vice president of public affairs for Mitchell Energy in Houston. "I wonder if this will be the first generation that didn't do better than their parents. There's a genuine feeling that the country has gotten way off track, and neither political party has any answers. Americans don't see any solutions."

Americans are so uneasy because they feel economic turmoil on two levels, one relatively superficial and the other much deeper. The surface layer is the most immediately painful one, a garden-variety recession of the sort that comes along every few years with the ups and downs of the business cycle. This one has brought the familiar pattern of layoffs and weak profits.

The deeper tremors emanate from the kind of change that occurs only once every few decades. America is going through a historic transition from the heedless borrow-and-spend society of the 1980s to one that stresses savings and investment. In the short run, this helped trigger the cyclical recession, which is likely to run its course in the next few months. But when it's over, America will not simply go back to business as usual.