Election Section

On one side is a massive fiscal stimulus effort of tax cuts and spending increases. On the other is the fear and uncertainty of the public about a war without precedent. 

This is the battle of the home front, the war to keep the economy strong and ward off or mitigate impending recession. 

No greater economic power has been assembled before in the lifetime of most adult Americans, since government-decreed fiscal and monetary efforts are augmented by manufacturer, retailer, airline and hotel discounts. 

And, at least for the time being, a surprising decline in the prices of gasoline and heating oil has reduced tensions on business and home budgets, freeing funds for saving or spending. 

Aiding the effort are interest rates that in some instances already have effectively dropped to zero when adjusted for inflation, and prices that have remained stable for months at relatively reasonable levels. 

The signals so far are mixed. Unemployment is creeping higher, but late reports of a decline in jobless claims is encouraging. Although stock prices remain volatile, they rebounded after initially plunging. And while retailers endured a terrible September, carmakers held their own. 

Early indicators, however, might not be reliable, since the shock effect could only have been negative. Businesses and consumers might reassess their possibilities, especially as the economic lures become clearer. 

Immediately after the attacks on the Pentagon and World Trade Center a survey of small business attitudes showed many canceling their hiring and capital spending plans, and expressing deep pessimism for sales. 

But, as economist William Dunkelberg told Congress, “At least 85 percent of small-business owners benefit from income tax relief, which would provide a broad base for economic recovery.” 

Such relief and more is now in the works, and Dunkelberg, chief economist of the National Federation of Independent Business, indicated that such measures could greatly change confidence, hiring and spending. 

How quickly all this could occur is still up in the air; there is a necessary time lag between enactment of economic lures and their impact, and additional economic deterioration could occur in that time. 

“Things are only starting to get worse,” economist Peter Hooper of Deutsche Bank told clients. In the year’s final quarter, he said, “we think the economy could contract twice as much” as in the earlier quarter. 

Such negative comments are based on hard experience in months past when, through interest rate cuts, the Federal Reserve sought and failed to stir the economy. Eventually, such lures are likely to pay off. But when? 

The stock market is another story, since it peeks into the future more than it deals with the present. In each of the past nine recessions it has bottomed at least four months before the economy. 

Watch it for signals. While, sadly, it has shown a high degree of fallibility, it is after all activated by institutions and people who are willing to put their money on the line. 

Already there are signs it sees something better out there in the immediate future, and the unprecedented number of lures dangling before the economy suggest it may not be seeing things.