I was sent this piece today and shook my head in amazement at the attempt at spin.
The author calls out Obama for fear-mongering about the economy and says the comparisons to the Great Depression are unfounded and nothing but a political scare-tactic. He makes the argument that the recession of 1981-82 is a more apt comparison.
I have a couple issues with this.
1.- Obama isn't comparing this directly to the Great Depression yet, he's called it the worst economic crisis SINCE the Great Depression. He's right.
2.- The author's dates are fucked up. This is the bulk of my problem.
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.
Let's make this a fair comparison of time frames here. The Great Depression is generally acknowledged to have started shortly after the stock market crash of October 29th, 1929. So a fair comparison would be from that date to October 1930. But Schiller is comparing all of 2008 to 1930 as opposed to starting in September 2008 and extrapolating to September 2009. Job losses were small in early 2008. It's been acknowledged we've been in a recession since November 2007, but the real brunt didn't hit until the last quarter of 2008.
And the bulk of those 3.4 million lost jobs have been in the last 4 months. Over 2 million jobs lost since September.
So if 3.4 million = 2.2%, that means 154.5 million jobs total exist. If the current rate of job losses stays CONSTANT (and it will, in fact, grow) at 600,000 per month until September, and we assume 2 million lost jobs since Oct 1st 2008, then that's 6.8 million jobs lost by October 1st 2009. That happens to be 4.4% of the total jobs, which is just shy of the 4.8$ 1930 total. Hell, if we just take 600,000 per month for all of 2009, then we're looking at 7.2 million for 2009 alone, or 4.7%. And like I said, those are conservative estimates.
Sounds a lot more like the Great Depression now.
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.
He's comparing the rate of the 1st month of the 1st full year of this crisis to the PEAKS of his comparisons. Let's look back when this is done at the PEAK unemployment rate and see how that equates. If anyone doubts we'll be close to 10% by 2010, then they're dreaming. That will bring us in line with his 1981-1982 comparison. If the situation continues to worsen until 2012, then who knows where it that rate will be?
Also, the official unemployment rate doesn't take into account people who have stopped looking for jobs, those who have taken part-time jobs because they can't find full-time work, or those who have fallen off the employment insurance radar. That number is available in the reports too, and it was 13.9% for January. But I don't know if the same metrics were used in 1932 or not. Regardless, when that number is taken into consideration, 25.2% if this continues for a couple years isn't out of reach.
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.
Once again, comparing the GDP in 2008 to anything is pointless. A 2% decline is a ridiculous estimate considering the collapse of manufacturing around the world. People are losing jobs, stores are closing, business are collapsing, and everybody's counting their pennies. 9%? Probably not, but anybody looking at the reality of the world right now isn't going to believe 2% either.
As for auto production. When did the car companies collapse? Oh yah, Q4 2008! Why the hell would use the overproducing first 3 quarters to compare to 1932?? Again - 1932, not 1929! What the fuck is the crap? There are also at least 3 more major auto players on the market, and sales are through the floor for everyone. Shipping yards have football-fields of cars sitting in them because not even the dealers want delivery. Let's look what the decline in production is like for 2009, and 2010, and 2011. The companies are still overproducing and the American ones are all bankrupt but don't want to admit it.
As for banks - at least 100 will be closed by year end. Citi and BoA should have died already, but were once deemed "too big to fail". Now they're tiny in comparison. Obama's talking nationalization of banks (the "Swedish model") to save all of them from going under. There also aren't nearly as many banks in the US as there were in the times he's comparing them to. Where are your percentages now math boy?
As for stock market devaluation - baby, we ain't hit bottom yet. Once again, his comparison is to the "early 1930's". That would equate to 2009-2011. Let's see where we end up.
This is one of the most transparently terrible attempts at positive spin I've seen in a long time. Anybody who compares the start of a crisis to the peak of past crises is a moron in my books. Let's look back at this period in a few years and then compare notes. There isn't an ounce of water that could be held by his arguments.