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271
By DavidW. Breneman
T
here is a tendency, when discussing the impact
of recessions on higher education, to treat recessions
as largely similar in kind, and thus not to pay much
attention to factors that may differentiate among them. What
we are seeing, however, in the financial crisis and decline of
2007–09 is a very different sort of event than, for example, the
recession of the early 1980s. Few have asked whether different
types of recession affect higher education differentially,
but this is a topic that the current downturn renders worth
considering.
Differences in Recessions
Since the early 1970s, the United States has experienced
five recessions: 1973–75, 1980–82, 1990–91, 2001–03, and
2007 to the present. Today, given the severity of the current
situation, the word “Depression” has crept back into the
conversation, as certain similarities to the dire experience
of the 1930s are evident. A brief commentary on economic
thinking about depressions and recessions is a good place to
start.
The great intellectual advance coming out of the 1930s
was the work of JohnMaynard Keynes, who in his classic
1936 book, “The General Theory of Employment, Interest
andMoney,” established the framework that guided
macroeconomic thinking for several decades. The Great
Depression witnessed hundreds of bank failures, a severe
contraction of the money supply, and the collapse of aggregate
demand in the economy.
Keynes focused his
efforts on rejuvenating
demand, and with
consumers and investors
on the sidelines, he saw
government as the sole
remaining source of new
demand, which through
the multiplier effect
of subsequent rounds
of spending could re-
start the economy. At
a time when monetary
policy was ineffective
(people and businesses
were hoarding cash for
liquidity purposes),
Keynes emphasized the
necessity of aggressive fiscal policy. In fact, it tookWorldWar
II to generate the demand necessary to pull the U.S. economy
out of depression.
Keynesian economics held sway into the early 1970s, when
March 2009
Recessions Past and Present
Higher education struggles with state cuts, rising tuitions and a climate of uncertainty
the comment “We are all Keynesians
now” was attributed to Richard
Nixon. But the 1973 oil shock and the
subsequent years of slow economic
growth and accelerating inflation,
known as stagflation, began to
undercut the logic of the Keynesian
system, focusing increased attention
onto monetary policy, as inflation is a
monetary phenomenon.
Paul Volcker, in his role as
chairman of the Federal Reserve
Board, broke the back of inflation
in the early 1980s by sharply raising
interest rates, and thereby squeezing
out private investment demand. The
result was the recession of 1980–82.
The success of this effort, in wringing high inflation out of the
economy, enshrined monetary policy as the key instrument
for guiding the economy, overshadowing fiscal policy as a
tool. But the economic cost was high, with the unemployment
rate reaching 10.8 percent.
The 1980s also saw the rise of “supply-side economics,”
so called to differentiate it fromKeynesian “demand-
side economics.”This new focus lionized the market,
entrepreneurship, innovation, and incentives for private
production and demand, primarily in the form of tax cuts.
Keynesian policies and the productive role of government
were dismissed as stodgy and old-fashioned, brushed
aside by the drive and vigor of the “supply-side actors,” the
entrepreneurs and producers. The recession of the early
1990s was brought on as these new actors confronted global
competitors, such as the Japanese and the other Asian “tigers,”
who were outstripping the U.S. in manufacturing productivity
and cost efficiency.
Inflation also surged again in the late 1980s, and tight
monetary policy had its effect in slowing the economy.
In order to regain some measure of competitiveness, the
early 1990s featured downsizing, re-engineering, and
restructuring of the work force, with sizable reductions in the
middle-management sector of the white-collar labor force.
Bill Clinton won the White House in 1992 in the sluggish
aftermath of recession by never forgetting that “It’s the
economy, stupid.”
The recession of 2001–03 was triggered by the collapse
of the high-tech, Internet boom of the late 1990s, as this
disruptive new technology burst on the scene and promised
to redo the way we conduct business. Speculation on virtually
any new “dot-com” company drove the stock market to new
highs, and when the bubble burst, much of the economy went
with it. The September 11, 2001, terrorist attacks added to
The current
recession is
significantly
different from those
that have preceded
it, and in that
sense, parallels to
the depression of
the 1930s are apt.