Whose Downturn?

The relentlessly bad economic news in recent days raises an important political question: How long does former President Bush keep ownership of this recession?

At this stage, voters have no doubt that the recession started on his watch. Yet plenty of blame deserves to be laid at both ends of Pennsylvania Avenue, and that blame extends to administrations of both parties, not to mention government-supported enterprises and mortgage companies.

In political terms, voters have dumped the blame into Bush's lap. But, at some point along the way, if this recession lasts very long, its ownership will transfer to President Obama.

According to the National Bureau of Economic Research, the official arbiter of such things, this recession started in December 2007. The average length of the last 10 recessions, dating back to 1945, was 10 months, the bureau says.

The two longest lasted 16 months each -- from November 1973 to March 1975 and from July 1981 to November 1982. So, the current recession reached the average length in October 2008, and in May of this year, it will reach the 17-month mark, making it the longest downturn since the Great Depression.

It's no surprise that this recession blew past the average point, nor will it be a shocker when it goes past the 16-month marker, as it surely will. Nevertheless, only the most committed pessimists expect this recession to last as long as the Depression, which actually consisted of double-barrel downturns, from August 1929 to March 1933, and then from May 1937 to June 1938.

One way to think about the present recession is to focus on its two components -- the psychological aspect and the fundamental aspect. The "psychology" is basically that when people get sufficiently worried about the economy, consumers stop buying, employers stop hiring, and lenders stop lending. The cumulative effect is that the economy grinds to a halt. General Electric's chairman and CEO, Jeff Immelt, calls this process a "negative feedback cycle."

The "fundamental" aspect of the problem is the more serious one. It involves financial institutions whose books are filled with assets of dubious value -- investments so upside down that even if the psychology turned around, normal appreciation wouldn't bring them right side up.

The economic stimulus package and Obama's exhortations are all designed to address the recession's psychological aspect. But the downturn's housing and toxic-assets component is what makes this economic crisis so challenging.

Should the recession last twice as long as the worst downturns since the Great Depression, or 32 months, it would extend into July 2010, or just over three months before the 2010 midterm elections. And although Bush still has ownership of the recession today, at some point next year, if the economy has not clearly bottomed out and started improving, ownership would transfer to Obama. All of the new president's actions would have had a year and a half to have worked. And if they haven't by then, he would begin to get the blame.

Statistically, so long as most of the remaining financial institutions hold together, one would certainly expect this recession to be coming to a conclusion at least by mid-2010. But, that proviso about financial institutions and their assets is the key. Their troubles are largely what's making this downturn deeper and tougher than normal.

As polling very clearly shows, congressional Republicans have done nothing to help themselves by almost unanimously opposing the massive stimulus package. Indeed, they look increasingly isolated: a narrow party that is looking inward for sustenance. Selecting former Maryland Lt. Gov. Michael Steele to be national party chairman is about the only intelligent thing that Republicans have done since Election Day. At this point, a Republican rebound seems more contingent upon a Democratic collapse than anything else. Certainly, Republicans aren't doing anything these days to help bring themselves back.