Call it the Bushness Cycle, which has replaced the business cycle: Contraction, Stagnation, Jobless Recovery, Wageless Expansion, in time for the next Contraction. The NBER's early ending date for the last recession looks more and more like a political sell out, and less and less like a reasoned attempt to deal with unusual economic facts. Everyone conventionally treats the bottom of hiring in spring of 2003 as the trough for the last cycle, not November 2001, which is the official date. What everyone is fumbling with is the return of a phase to the economic cycle that has been relatively absent for almost a century. It was Krugman who said that 2001 wasn't your father's recession. He was right, and one implication of this is the return of convolescence to the economic cycle.

Business Week realizes that housing's soft landing isn't shaping up. Hale outlines the bear case scenario fairly forcefully. The reality is that there has been a global inflation driven boom. Economics tells us what has happened fairly clearly - by paying a great deal more for oil, we've managed to convince those that produce it to climb fairly far up the curve of diminishing returns. The result is that most of the benefits of the boom have gone to a relatively few places.

Americans thought that "their" houses were the way they were participating in this boom. Since under microëconomic conditions, a house has value based on what people do to the house, and the school system that they have a direct say over - people assumed that this value would be "theirs" to extract.

This turns out not to be the case. Americans found out first with stocks and will now with houses that the business cycle overwhelms localized decisions. For most of the post-war era Americans have been consumers of flattening of the business cycle - that is, others evened out the ups and downs, and charged Americans for the privilege of worrying less about the business cycle. Starting with the 1990's Americans thought they were behind the scales, and could profit from the cycle, not realizing that the implication is managing risk. Americans have been very bad at doing this.

This means that you shouldn't fear the recession, so much as the kind of recovery that comes afterwards.

The reason is this. In the post-Keynesian world, as soon as the trough of a contraction was visible, even if it wasn't officially declared, government could start spending, and/or the federal reserve could lower interest rates. The economy roared back. Rebound followed contraction with a sure regularity that it became expected. However, this is not the pattern of 19th century business cycles, which would have a panic, and then a long phase before business activity would come back. This phase of convolescence occured

The 1990's recession felt like it was lingering because a federal government, strapped for cash by having to bail out the Saving's and Loan System could not spend its way out of this phase between contraction and rebound. After the 2001 recession, the entire economy had to wait until a shot of war spending - which was delayed while Bush fiddled his way into Iraq started the rebound. Now when it did, we got what looks like a classic rebound, which is as it should be, because it was driven by government spending and historically accomodative - that's fed speak for "easier than a drunk college student" - monetary policy.

One can see this because hiring, GDP and other measurable factors snapped back to trendline average for other Keynesian recoveries. In short, one of the ways Americans paid for the Iraq war was with the miserable economic period of 2002 and 2003. If you want to know about the polarization in American politics, trace it back to the way that stagnation fell heavily on the bicoastal economies and much less on the construction and oil industries. In short, a large number of people came to realize that Bush was bad for their economic well being.

However, because the economy never ignited in its own - that is, what drove it was cheap money from the fed and cheap profits from the federal government's revenue reductions - giving away 5% of GDP a year to Bush's rich friends has been very good profits, but not so good for the national debt picture - this means that there has been no storing up of national wealth to deal with the next recession. The mania for reducing revenues right into the inflationary boom - the great Republican policy of the last 25 years - means that not only do prices go up, but states and the government arrives at the recession broke.

Now one might argue that business spending will pick up. And it will - where ever it is cheapest to build new production. This is to say, on the soil of which ever government is willing to allow business to externalized the most costs. That won't be here. It might not even be in China.

This means that even after the contraction is over, many of the people laid off will never return to work at their previous level of salary and stability. Many of those same people are waltzing into the recession assuming that savings and unemployment will pull then through the bad year or so, and then all will be well. But the lesson of 19th century panics is that the convolescence often ends only when there is another boom style increase in paper money. In short, one can't rely on the private sector. The solution to down turn in the 19th century was often going to war. Think of it as pre-Keynesian stimulus.

However, this reality, which will only penetrate public and academic consciousness slowly, people are now still acting as if disruptions are going to be temporary. However, the reality, even if the business cycle nominally goes on, is quite different. Where are all the people who have made good livings building homes going to go now that housing is going to shed jobs? How are they going to make payments on their trucks and equipment. Business spending, even if it should somehow stabilize the macro-economy will not provide many jobs for carpenters and electricians.

While Wall Street - ever looking at their next trade - is hoping that Bernanke has given them the pause that refreshes - is wondering when inflation pressures will be declared over - Main Street is about to get ripped by bone crunching deflation of housing prices. Since what Main Street buys - oil and health care specifically - is going up in price, and where they have stashed their money - housing - is going down in price, the results, regardless of the NBER, are not going to be pretty.

This means that Main Street is going to be in the same ugly position that Wall Street was in 2001 - upside down in investments, with pressures from every side. Fortunately for Wall Street Bush came in and dumped trillions of dollars of no-brainer money on them. It is unlikely that the next executive will do the same for Main Street. Worse still, in order to pay back the loans taken to bail Wall Street out with no strings attached money, Medicare is going to have to be hammered, and the bill is going to land on people's doorsteps in the form of state taxation.

If there were a hard rebound coming, then people could do what they did the last two big recessionary cycles - work two and three jobs, and send the spouse to work. But there are no such jobs coming. In fact, the shortage of high paying jobs is sending people out, not in, ot the workforce. Such couples are going to start washing up penniless on the shores of retirement, because they drew down their savings in their 50's. Without the rebound, the ability of American families to clean up their own finances will be very limited, and probably insufficient for millions to avoid falling below the poverty line, or falling out of middle class affluence into paycheck to paycheck living.

In short, don't fear the recession, fear the long wallow in convolesence, because it is that which will make families juggling debt and over-mortgaged properties finally go under.