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How to tell 'good' recession from 'bad'

Nearly everybody in Washington now believes that the long-awaited recession has come, and the question is, "Is this good or bad?" Some subjective answers are:

It is "bad" in the sense that recession means declining production, more unemployment, less take-home pay, individual hardship, and smaller profits.

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It is "good" in the sense that it may clear the air, restore reality, brake inflation, and bring the economy closer to what is regarded as the inevitable upturn in the business cycle, particularly if the recession is "mild."

Wall Street reacted enthusiastically to the cut in the prime interest rate announced by the Chase Manhattan Bank in New York, from 20 percent to 19 3/4 percent, on the theory that the peak of unprecedented money-borrowing costs had passed. The quarter-point decline had far greater symbolic meaning than the amount itself. It encouraged hope that, even with a temporary industrial decline, a return to stable prices and interest costs might be in sight.

Prior to that, however, a truckload of bad news fell on the economic watchers here. For a second month in a row, industrial output declined: 0.8 percent in March, 0.2 percent in February. Technically, a "recession" is often defined as three continuous months of decline; most observers, however, believe the downturn is already here. New figures show corporate profits after taxes down 0 .9 percent in the final quarter of 1979. Auto sales declined 24 percent in the first part of April; Ford announced forthcoming closings of three plants. Statistics continue to show construction frozen by unprecedented interest rates and decline in credit due to higher costs.

Administration leaders could do nothing but put a bold face on the news. If economic trend lines are going up next fall, they hope, voters will vote on the "recovery" rather than on the slump. Actually, however, hardly anything could normally hurt presidential candidate of the dominant party more than a recession at election time. Vice-President Richard Nixon was defeated in 1960, many think , because of the recession he inherited from President Eisenhower.

Some economists are detached about economic slumps. The current Time magazine cover story on the economy notes: "Recessions are not only unavoidable but often beneficial to society as a whole, despite the pain they cause some individuals. They can purge the system of excesses, failed prov ducts, and mismanaged companies. Since World War II, such slumps have been less severe . . ." due to social support programs.

The worker who loses his job is less philosophic about it than the economist penciling a line on an employment chart. The Congressional Budget Office estimated April 9 that every 1 percent increase in unemployment costs the US Treasury up to $29 billion in lost revenue and job insurance. Speculation here is that a "mild" recession would send the present 6.2 percent nationwide unemployment rate up to 7 or even 8 percent.

In an election year, pressure will be strong on President Carter to relax present austerity measures and the goal of a balanced budget. Ronald Reagan already advocates a 30 percent, three-year tax cut, although he argues that under the Kemp-Roth formula this can be done without increasing deficits.

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On the statistical tables the United States has had a long expansion period prior to the present tentative slump. Here is the record for 30 years:

* 1948-49 recession (11 months: November-to-October); industrial output declined 9 percent.

* 1953-54 (13 months); 8 percent decline.

* 1957-58 (9 months); 13 percent decline.

* 1960-61 (9 months); 6 percent decline.

* 1969-70 (12 months); 7 percent decline.

* 1974-75 (15 months); 15.3 percent decline.

Expansion from the end of the last 1975 recession has lasted around 4 1/2 years -- a long time on the business cycle. If the putative "recession" is mild , it would normally last nine months or longer.


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