America Today: Reliving the Nightmare of the 1980s, Not the 1930s

Mark Perry at the American Enterprise Institute reins in the time-travelers who think we have to go back to the Great Depression to find economic times as relentlessly awful as today. Some perspective:

A Google News search shows that the phrase "since the 1930s" has been used 7,454 times in the last month, and the phrase "since the Great Depression" has been used almost 6,000 times in the last month, and most of these news references are comparisons of today's economic and financial conditions to the 1930s and the Great Depression. In contrast, the phrase "since the 1980s" has been used only 758 times in the last month.

….Compare for example some of the key economic variables today to the peaks for those variables in the early 1980s…

We are not even yet anywhere close to the economic conditions of that period. For example, the prime rate was more than six times higher in 1980 compared to today, core inflation in 1980 was six times higher than today, the unemployment rate in November and December of 1982 was more than a percentage point higher than the August 2009 rate, the 30-year mortgage rate in 1981 was almost four times higher than today's 5 percent, the car loan rate in 1981 was 2.5 times higher than today, and real gas prices were 32 percent more expensive in 1981 than today….

Perry goes on to, somewhat blithely I think, hint that we may be about to enjoy a period of unrestrained economic growth similar to the one that finished out the 1980s after that grim nadir of 1982. Still, as the assumption that quick, generous, and extensive government action, takeovers, and megaspending are needed to rescue us from Great Depression II dominates the policy debate, the reminder that we got out of a worse economic dilemma 27 years ago without such panicked reactions is helpful.

Comments

[andy]

"Perry goes on to, somewhat blithely I think, hint that we may be about to enjoy a period..."

you really split the hell out of that infinitive.

[Jimmy Carter]

I think an overwhelming portion of the intensely demonstrated animosity toward President Jimmy Carter is based on the fact that he is a white man.

[@]

My parents were children of the Great Depression.
They knew the Great Depression.
Mr. Scaremonger, this is no Great Depression.

[tarran]

Well duh!

The great Depression was not caused by market forces. It was created by the government policies that were designed to sustain the boom of the 1920's and maintained by the policies instituted to save people from it.

It's TARP, Bailouts, auto-czar's and the like that will make this the Great Depression II.

[Pro Libertate]

I've been saying this the whole recession. We're in the late 70s, not the Depression. Even that comparison is just a general one--plenty of the problems of the late 70s aren't issues today. And vice versa.

Anyone who compares this in any real way to the Depression is a doofus.

[Joe]

"...Still, as the assumption that quick, generous, and extensive government action, takeovers, and megaspending are needed to rescue us from Great Depression II, the reminder that we got out of a worse economic dilemma 27 years ago without such panicked reactions is helpful."

The only trouble with this interpretation is back then the cost of "capital" decreased as taxes, inflation, and interest rates fell across the board - in the US and in other places like the UK and Germany. Thus there was an environment created to invest in. Today, what can we do to lessen the impact of these variables? Taxes could be cut, but are lower than in the 80s. Inflation is low - it can only really go higher unless we're in for some deflation (my thought is deflation is more likely). And finally, interest can't go anywhere but up. Taken together, I don't see how the 80s are a guide for today's issues. While those times were bad, I think we'll be wishing we were back in the 80s again soon enough as we have not seen anything yet (but that's just my opinion...).

[Pro Libertate]

It's just a different kind of acute mess, but it lacks entirely the scope and scale of the Great Depression, which was a profound and lengthy economic disaster.

What is instructive about the Depression era is that the government did plenty to make it worse. We might see that, if things keep going the way they've been. Whether another depression will result is anyone's guess, though I doubt it.

[P Brooks]

Reliving the Nightmare of the 1980s

Big hair, leg warmers and lycra?

[Mango Punch]

Lame post:
1) Since the 1930s means it's not as bad as the 1930s... ie it's not as bad as the great depression but is worse than all intermediate downturns.
2) Lagging indicators: Unemployment (and durration), Prime rate, Inflation Rate (of services), Consumer Credit... Way to use lagging indicators to say that this recession isn't as bad as past ones, we haven't hit the bottom yet in terms of actual economic pain, and the indicators listed won't peak until after we hit the bottom.
3) I get this as a piece trying to push policy-makers to err on the side of caution, but an econ 101 class could teach you better economics than the piece portrays
4) I think most experts who are a lot smarter than me think that this is going to be AT LEAST as bad as the 1980s
5) Trully weak-sauce for AEI
6) Disclamer: I only read the exerpt of the piece that Doherty quoted and hacen't read the actual AEI paper

[R C Dean]

It's just a different kind of acute mess, but it lacks entirely the scope and scale of the Great Depression,

Well, so far. Give us a chance, though!

One scenario:

Either (a) retail sales come in bad, which sets of a wave of commercial real estate defaults/foreclosures, and/or (b) the ongoing foreclosure rate in residential real estate (what, you thought it had gotten better?), triggers another financial collapse because none of the underlying problems have been fixed.

This collapse either (a) can't be stimulated away with bailouts or (b) the Treasury prints trillions more to paper over the problem.

The dollar is finally, irrevocably broken, and hyperinflation sets in. Decades-long economic contraction/stagnation ensues.

Personally, I give that scenario a better than even chance.

[Warren]

Way to completely miss the point. Unemployment is still on the way up. Inflation hasn't even gotten started yet. And in the mean time, we're digging out way into a hole with ever incrasing speed. And you want us to believe we dug our way out? We're in fucking deep and it's gonna collapse on our heads. There is no possible way we will be able to service our debt in twenty years time.
doom
DoooM
DOOOOM

[G. Gordon Liddy]

"Personally, I give that scenario a better than even chance."

Which is why I advise you to invest all of your money in gold. You can trust me. Right?

http://www.youtube.com/watch?v=sZ9rQgWousU

[John Thacker]

1) Since the 1930s means it's not as bad as the 1930s... ie it's not as bad as the great depression but is worse than all intermediate downturns.

No, it's less bad than the end-of-WWII downturn, but that's being treated as a special case.

More importantly, it may be worse than intermediate downturns, but it's much closer to the intermediate downturns than it is to the Great Depression. A 3.9% decline is worse than 3.2% and 3.7%, but it's still closer to them than it is to a 26.7% decline. So bringing up the Great Depression is still fatuous.

3) I get this as a piece trying to push policy-makers to err on the side of caution, but an econ 101 class could teach you better economics than the piece portrays
...
6) Disclamer: I only read the exerpt of the piece that Doherty quoted and hacen't read the actual AEI paper

Obviously. And have you no shame?

[Mango Punch]

Yo, Mark Perry, shit's getting worse

(sorry for stealing the "Yo" Xoenos)

[Mango Punch]

@John Thacker

What about point 2?
Care to debunk how using lagging indicators that are getting worse and comparing them to peaks in said indicators in past cycles makes sense... While things aren't that terrible right now, there is the potential for them to get a lot worse... and even without getting a lot worse, the indicators listed will still get worse before this is over.

[robc]

my thought is deflation is more likely

I disagree

[Xeones]

Yo, Mango Punch, no problem. Though i don't know who "Xoenos" is.

[Mango Punch]

@ John Thacker,

I was a touch ashamed, read the one not-posted paragraph and still think it sucked. I'm even more dissapointed because he's just cherry-picking economic indicators, and not making a real argument about the economy at all.

[Colin]

I wasn't around during the Depression, but I was during the 70s, which were far worse times than today.

Gas lines, high inflation, crime, bad music -- you name it. And unemployment was just as bad, or at least it seemed that way.

[MNG]

Is our current economic plight more like the plight in the 1980's or the 1930's is a question just slightly more interesting than what color were Charlemagne's eyes....

Yawn, back to my nap. Wake me up when people start denying global warming or crapping on unions.

[Nick]

We have crime and bad music now. Inflation is coming. Gas lines? Wait until the greenies outlaw domestic production.

[Nick]

Global Warming is a complete fabrication by Teh Unions!

[Naga Sadow]

MNG,

Don't you mean "climate change"? 😉

By the way, where ya been? I've been back for about a week and I haven't seen a single post by you.

[hmm]

I've spent the last year listening to it's the end of the world run to the hills. I've had all of it I can take from the politicians pushing for more control and the assholes looking to mitigate their fucked up risk taking with my dollar.

Now that we've bailed out Tom, Harry Dick, and his dog I get to listen to don't worry be happy for the next year as we slowly slide down a razor on a government bungee cord. Either way I've about had it with people screaming all is well or all will be well if...

It's like watching retards wrestle in a pool of gasoline with Bick lighters taped to their foreheads. I'd give my left nut for a flare gun.

[I, Kahn O\'Clast]

"the prime rate was more than six times higher in 1980 compared to today, core inflation in 1980 was six times higher than today"

So the real prime rate is exactly the same. Check

[hmm]

While I'm bitching WTF is up with ammo sales. Jesus, Mary, and Joseph the damn gun nuts have gone off their rocker for almost an entire year. I have no clue what you can correlate ammo sales too, but if you can accurately match it to anything then you have an inside line on some kind of big move.

[Mango Punch]

"I have no clue what you can correlate ammo sales too"

Revolution?

[?]

Busch 30-packs.

[Paul]

"since the Great Depression" has been used almost 6,000 times in the last month

5,642 of those instances were on NPR's, All Things Considered.

[hmm]

Busch 30-packs.

I was thinking the same thing. But I'm not sure it will hold up to modeling.

[P Brooks]

hmmm-

Demand for ammo is high in Iraq and Afghanistan. That could have an effect on domestic availability.

Your Tax Dollars at Work.

ps- Fuck AEI. I don't pay attention to anything those guys say.

[Paul]

In fact, Robert Segal now ends every sentence with "...since the Great Depression".

[Paul]

The Nazi's would have liked Google:

http://www.google.com/search?hl=en&safe=off&q=%22all+things+considered%22+%22since+the+great+depression%22&aq=f&oq=&aqi=

[hmm]

Demand for ammo is high in Iraq and Afghanistan. That could have an effect on domestic availability.

The demand in Afghanistan is high. Iraq isn't that bad for small arms ammo. From what I have been told the battles in Iraq tend to be shorter. The Afghans are better fighters and will engage for longer periods of time. That's purely anecdotal. I know the typical load for ammo in Afghanistan is 3-4 times that in Iraq. And no one is going to be carrying more than they have too.

That said. The government contracts are filled. The consumption has come from the private sector not the government. Even the firms that but and reload spent government brass, something Congress tried to stop not to long ago, can't keep up. Shitty steel casing ammo is selling out. Non military calibers are selling out. It's been like this all fucking year.

[Pro Libertate]

If Congress is split or changes hands altogether in 2010, the government may be brought to a standstill as far as massive intervention is concerned (leaving aside the Fed for a moment). If so, maybe the economy will be allowed to straighten out on its own. If so, I predict a true recovery.

Lots of ifs.

[Craig]

One major problem with comparing financial statistics from today with those from the 1980s (or earlier) is that the definitions have changed. If inflation and unemployment were still calculated the way they used to be, the numbers would be much higher.

[Ebeneezer Scrooge]

robc ,

______________
my thought is deflation is more likely

I disagree
______________

I agree with your disagreement.

When the real price of housing comes down and the inflation actually does set in for real, the final "cost" of a house (in dollars) is going to be insane. Of course so will everything else.

I'm not so sure this isn't a good time to keep rental houses if you can afford to hang on for a decade or so. I figure you a) end up at least not loosing your investment due to inflation, or b) the whole economy really does go down the drain as RC Dean predicts, in which case it won't matter anyway.

Gold is great stuff, unless there's nothing around to buy with it.

I for one doubt that we're going all the way down the drain on this one. I'm more concerned that we'll come out of it permanently stagnated, in the interest of our politicians permanently grabbing a whole bunch more power.

[Ebeneezer Scrooge]

btw, to all you gold bugs -- if RC Dean is right in his even-odds prediction and the economy dies, then I hope you all have your money horded away in gold for me.

You see, my contingency bet in this environment is to start cultivating the next Mongolian Horde. I'm really going to need there to be something laying around for them to steal.

I'm betting that if it all collapses, a horde will beat a hord.

[R C Dean]

if RC Dean is right in his even-odds prediction and the economy dies,

Oh, please. I'm not predicting the US economy dies so we're all hunting for molerats in the shattered ruins of DC.

I'm saying our economy is very fragile, and we could easily take a pretty brutal hit and not have the wherewithal to come out of it for a pretty long time.

[Urkobold™]

THE URKOBOLD IS AMASSING A HORDE OF MONGOLIAN WHORES FOR THE END TIMES.

[hmm]

One major problem with comparing financial statistics from today with those from the 1980s (or earlier) is that the definitions have changed. If inflation and unemployment were still calculated the way they used to be, the numbers would be much higher.

I've been poking around looking for a simple explanation of the differences or some idea of how calculations have changed through time. I can't find anything. I've heard and read this several times, but would love to see some quantitative data.

So if anyone knows of a source link away.

[Ebeneezer Scrooge]

Oh, please. I'm not predicting the US economy dies so we're all hunting for molerats in the shattered ruins of DC.

Good. We'll steal those too.

[Ebeneezer Scrooge]

Oh, please. I'm not predicting the US economy dies so we're all hunting for molerats in the shattered ruins of DC.

But it gave me a good excuse to start my horde. I've been looking for an excuse for a really long time now.

Now that the cat's out of the bag, I'm going to have to quote you on it whether you wanted to predict the end or not.

[Ebeneezer Scrooge]

THE URKOBOLD IS AMASSING A HORDE OF MONGOLIAN WHORES FOR THE END TIMES.

Good. We'll steal those too.

Damn, wrong cut and paste.

[Tsu Dho Nihm]

Craig is correct. If we revert to the way we calculated unemployment, inflation, etc. the current numbers would be far worse than what's reported now.

[Dr. K.]

Reliving the Nightmare of the 1980s

Big hair, leg warmers and lycra?

Jungle Bush.

[Sean W. Malone]

"'ve been poking around looking for a simple explanation of the differences or some idea of how calculations have changed through time. I can't find anything. I've heard and read this several times, but would love to see some quantitative data."

I'm a little too tired atm to find links - but the big changes were going from U5 or U6 unemployment rates down to U3 and kind of ignoring the underemployed among us, or those who gave up looking for jobs because they were too disheartened. The unemployment numbers are also wonky when they include government workers... Obviously, part of the point is that "private-sector" jobs, fund government jobs via taxation.

As for Inflation, CPI has changed a bit over the years, but I think one of the big changes is that the Federal Reserve no longer publishes M3 money supply data, and thus pretends they did not increase the money supply as much as they actually have.

[Random Dude]

http://www.shadowstats.com