More optimistic
Despite problems with the nation’s banks, however, economist Alan Levenson is less inclined to agree that a recession is imminent. “I recognize that the downside risk of recession has increased,” says Levenson, who serves as chief economist at T. Rowe Price & Associates. “Aside from the housing industry, though, there has not been a lot of fat in employment and capital spending during our economic prosperity over the past six years.”

But Baker also points to gas prices as a factor potentially driving the country toward recession. “You can really think of gas prices as a sort of tax,” he  explains. In his estimation, a $1 rise in gas prices is about the equivalent of a $100 billion a year tax increase, pulling money out of the economy that people otherwise could have spent.

Tax rebate
Although the cause of the nation’s current economic condition remains up for debate, methods of somehow getting money back into the economy to stimulate it have been the centerpiece of recent government activity.

In early February, a law was passed where more than 130 million Americans will benefit from an income tax rebate plan that will give $600 to $1,200 to most households and at least $300 to lower-income people, Social Security  recipients, and disabled veterans. Only qualified people who file a 2007 return will receive a rebate.

Bailout or economic stimulus?
In January, the Federal Reserve reduced the federal funds rate by a significant .75%, while Congress was putting the final touches on a massive package to stimulate the economy. Some initial reaction was that both actions constituted a bailout of the mortgage and housing industries for a situation that people brought on themselves, but many disagree.

“The Fed’s actions are meant to help the economy in general, not just the  housing and mortgage industries,” Morici says. “For example, why should the auto industry suffer just because those industries are?”

Others take this observation one step further, considering the potential consequences of widespread economic failure. According to Baker, it’s appropriate for the government to take action, if not to head off a recession, then to limit its impact on its citizens.

“If the government simply allows the market to play itself out, it would be allowing millions of people to become unemployed,” he says. “You could always have better or worse policies, but the idea that you’re going to sit there and let millions get tossed out of work is just foolish.”

And while the government’s current response is a start, Baker believes that a larger stimulus package may be necessary in the longerterm. He also points out the need for much stronger regulation of the financial sector, particularly related to its loan practices.

John McCain
Has no proposed plan. Yes. Plans to permanently repeal the Alternative Minimum Tax, paid predominantly by the middle class. Supports economic subsidies for ethanol production.

Hillary Clinton Wants to address problems in subprime mortgage market and curb lending abuses. Also has plan to assist families facing  reclosures. Plans to extend middleclass tax relief and the child tax credit. Proposes a $50 billion plan to fund research and development of alternative energies.

Barack Obama Especially focused on regulating subprime mortgage industry. Also proposes a fund to help homeowners avoid foreclosure. Proposes a credit of $500 per working person or $1,000 per family.