By Bradley R. Schiller
President Barack Obama has turned fearmongering into an art form. He has repeatedly raised the specter of another Great Depression. First, he did so to win votes in the November election. He has done so again recently to sway congressional votes for his stimulus package.
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In his remarks, every gloomy statistic on the economy becomes a harbinger of doom. As he tells it, today's economy is the worst since the Great Depression. Without his Recovery and Reinvestment Act, he says, the economy will fall back into that abyss and may never recover.
This fearmongering may be good politics, but it is bad history and bad economics. It is bad history because our current economic woes don't come close to those of the 1930s. At worst, a comparison to the 1981-82 recession might be appropriate. Consider the job losses that Mr. Obama always cites. In the last year, the U.S. economy shed 3.4 million jobs. That's a grim statistic for sure, but represents just 2.2% of the labor force. From November 1981 to October 1982, 2.4 million jobs were lost -- fewer in number than today, but the labor force was smaller. So 1981-82 job losses totaled 2.2% of the labor force, the same as now.
Job losses in the Great Depression were of an entirely different magnitude. In 1930, the economy shed 4.8% of the labor force. In 1931, 6.5%. And then in 1932, another 7.1%. Jobs were being lost at double or triple the rate of 2008-09 or 1981-82.
This was reflected in unemployment rates. The latest survey pegs U.S. unemployment at 7.6%. That's more than three percentage points below the 1982 peak (10.8%) and not even a third of the peak in 1932 (25.2%). You simply can't equate 7.6% unemployment with the Great Depression.
Other economic statistics also dispel any analogy between today's economic woes and the Great Depression. Real gross domestic product (GDP) rose in 2008, despite a bad fourth quarter. The Congressional Budget Office projects a GDP decline of 2% in 2009. That's comparable to 1982, when GDP contracted by 1.9%. It is nothing like 1930, when GDP fell by 9%, or 1931, when GDP contracted by another 8%, or 1932, when it fell yet another 13%.
Auto production last year declined by roughly 25%. That looks good compared to 1932, when production shriveled by 90%. The failure of a couple of dozen banks in 2008 just doesn't compare to over 10,000 bank failures in 1933, or even the 3,000-plus bank (Savings & Loan) failures in 1987-88. Stockholders can take some solace from the fact that the recent stock market debacle doesn't come close to the 90% devaluation of the early 1930s.
Mr. Obama's analogies to the Great Depression are not only historically inaccurate, they're also dangerous. Repeated warnings from the White House about a coming economic apocalypse aren't likely to raise consumer and investor expectations for the future.
In fact, they have contributed to the continuing decline in consumer confidence that is restraining a spending pickup. Beyond that, fearmongering can trigger a political stampede to embrace a "recovery" package that delivers a lot less than it promises. A more cool-headed assessment of the economy's woes might produce better policies.
Mr. Schiller is an economics professor at the University of Nevada
In which we travel into interesting waters . . . (for a fairly long trip, so be prepared) Dr. King's 1968 book, Where do we go from here: chaos or community? , is profound in that it criticizes anti-poverty programs for their piecemeal approach, as John Schlosberg of the Center for a Stateless Society [C4SS] observes: King noted that the antipoverty programs of the time “proceeded from a premise that poverty is a consequence of multiple evils,” with separate programs each dedicated to individual issues such as education and housing. Though in his view “none of these remedies in itself is unsound,” they “all have a fatal disadvantage” of being “piecemeal,” with their implementation having “fluctuated at the whims of legislative bodies” or been “entangled in bureaucratic stalling.” The result is that “fragmentary and spasmodic reforms have failed to reach down to the profoundest needs of the poor.” Such single-issue approaches also have “another common failing — ...
Comments
Bush!!!!!!
-Faux Perry
;)
Token tax refunds ($400 per individual making under $75K a year), and a no-strings-attached bank bailout plan.
Mix in some new pork, and voila!
"Change" that looks an awful lot like what Bush came up with the last few years. With a bigger price tag, of course.
What I wonder is, who are they going to blame when this magical package doesn't magically send us back into credit-fuelled economic growth? People who didn't hope hard enough?
Is that true?