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December 22, 1991
"Econ 101: Up Now?"
San Jose Mercury News

By Timothy Taylor
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IF the economy turns up in 1992, George Bush will take credit. Of course, he won't deserve it. But he doesn't deserve all the blame he's taking for the recession, either.

The trigger for this recession was Saddam Hussein's invasion of Kuwait. With heavy debt burdens inherited from the 1980s, government, business, and individuals all responded to that shock by hunkering down. And so the recession spread. But these factors gradually wear off; in fact, some analysts think the U.S. economy has already touched bottom. Lower interest rates engineered by the Federal Reserve -- the discount rate was cut to 3.5 percent Friday, its lowest level in 27 years -- will stimulate business investment and some consumer purchases. If enough people and businesses start buying in 1992 because they believe that an economic upswing is coming, their actions can ignite a recovery.

The banks and the savings and loans will continue their downward spiral. Congress will struggle with whether it wants to bleed and blame them, or to carry out actual reform of deposit insurance and financial regulation.

In Silicon Valley, companies will continue their miraculous technological creations, despite enormous federal budget deficits that continue to sop up much of the available capital, and despite a lack of federal commitment to civilian-oriented research and development.

The United States is likely to seek economic ties with Russia, Ukraine, Poland and the rest of the formerly communist economies, on the grounds that such ties will strengthen all parties. In its next breath, the United States will shrink away from ties with Mexico, Japan and other trading partners, on the grounds that such trade does not benefit us.

Plausible-sounding people are claiming that Japan's economic growth stems from policies of selling products at below the cost of production and refusing to buy foreign products, even when they are cheaper and of higher quality than Japanese products. Those who express doubt that such a policy actually works, or that the United States should adopt such a policy, will be denigrated as "free market idealists." May such idealists speak up loudly in 1992.

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