Friday, September 25, 2009

The Economy Is As Bad as The 1980's, Not the 1930s: Did We Scare Ourselves Into High Unemployment?

Mark Perry writing on the EnterpriseBlog, The Worst Economy Since…. the 1980s?, compares the current recession to the 1980s recession.

Perry writes:

[click image to enlarge]

By comparing today’s economic conditions to the 1930s and the Great Depression, the news media have apparently skipped the terrible economic conditions of the early 1980s and gone all the way back 75 years to the 1930s, without a comparison to a more recent period like the early 1980s. Compare for example some of the key economic variables today to the peaks for those variables in the early 1980s (see graph above).

We are not even yet anywhere close to the economic conditions of that period.

And consider that as bad as the economic conditions were back in the early 1980s, the U.S. economy started on an economic expansion in November of 1982 that didn’t end until July 1990, 92 months later, and marked the third longest expansion in U.S. history. Given the current environment with historically low interest rates and inflation, today’s economic and financial conditions are much more favorable for economic growth than the conditions of the early 1980s.
Perry's complete post is available here.

I am not a strong believer of behavioral economics or irrational markets, but still, I am surprised that no one discusses the possibility of an anti-bubble. Could the strong language of Bernanke, Paulson, Obama and Obama's economic team about the severity of the current economic downturn and the frequent association of current economic conditions with the 1930s Great Depression have contributed to more unemployment than would have otherwise occurred. Certainly, the Depression is viewed as a time of high, sustained unemployment.

Did the linguistics make companies lay off and delay hiring more people than they would have without the strong references to the 1930s Great Depression? The unemployment rate is exceeding economists' forecasts developed at the earlier stages of the crisis.

Personally, the economic language during the 2009 Winter frightened me. Did it cause me to purchase less and save more than I would have otherwise in this recession? I do not know.

No comments:

Post a Comment