AP NEWS
Related topics

Popular Mood Swings

August 11, 1988

NEW YORK (AP) _ Get set to hear more and more about higher prices, taxes and interest rates as the popular mood descends into another of its blue funks.

While sociologists know more about such phenomena than do economists, even the most inexperienced observer can spot when a mood change is about take place.

The onset of a blue mood originates in bright times, and seems to come almost as a consequence. It is an overreaction that seems unable to stop itself until it goes to an extreme, whence a brighter mood develops.

The newest blue mood follows a short period of self-congratulation, during which Americans praised the strength of their economy, which not only shook off a big stock market crash but showed unexpected strength.

As moods brightened, stock forecasters raised their sights and economists declared there’d be no recession this year. Fear of the twin trade and budget deficits seemed to abate. People bought cars and houses.

The Federal Reserve’s most recent lightning bolt, an increase of the discount rate to 6.5 percent from 6 percent, officially ended the mood, and perhaps economic growth as well. But the clouds had been forming for weeks.

On Aug. 5, the Bureau of Labor statistics announced strong job growth for July; immediately it was interpreted as an indicator of inflationary pressures, the reasoning being that wages would rise sharply in pursuit of fewer workers.

Relatively unnoticed was a notation by Commissioner Janet Norwood that job- market tightness could have been exaggerated by methodology problem; or an earlier Conference Board message that the labor market seemed to be loosening, ″good news for all those still concerned about the economy overheating.″

When the mood turns it does so sharply.

Fortune magazine ran a cover story that advised the presidential candidates to stop kidding the public about taxes, because ″everyody knows that for the deficit to come down, taxes must go up.″

Industry Week magazine matched it with a story on ″The Next Tax Bite. Where, and How Big?″ It contends that ″like it or not, analysts expect the next administration to implement new taxes.″

Said the Ruff Times: ″Whether our next president is Michael Dukakis or George Bush, you’ll get higher taxes.″

When the mood descends it spreads out, enveloping everything.

After the Fed raised the discount rate, securities analysts rushed out new, mainly negative views. Economists revised, mainly downward, forecasts of the expansion’s durability. Confidence fled. Good news became bad.

All reasons to expect the worst about inflation, taxes and interest rates were exploited. The weather, for example, was blamed; a newspaper story related that July heat hurt retailers - beside a chart depicting July sales gains by top stores that ranged from 2.7 percent (J.C. Penney & Co. Inc.) to 30 percent (Wal-Mart Stores Inc.).

″There’s no doubt in my mind; it’s inevitable there will be tax increases in 1989,″ a magazine quotes a businessman.

Perhaps true, because that is the way of taxes throughout the 1980s: Tax increases precede and follow tax cuts.

But is it really true that prices, interest rates and the general economy are all headed for disaster?

Or is that simply the latest mood?

End Adv PMs Thursday Aug. 11

AP RADIO
Update hourly