Perspective, Coffee, and Cheerios

Maybe you'll see this before sitting down with the local daily and reading screaming headlines about how the drop in 4Q08 GDP was the WORST IN 25 YEARS!!!!!!

If so, have a little perspective with your breakfast as you try to digest the bile.

1) Consider for a moment that the way the economy was repaired by Ronald Reagan and Paul Volcker has led to a quarter century of almost uninterrupted growth - growth that never fell to the levels resulting from the economy they inherited from Carter. Isn't it just possible that doing what they did might again fix things and lead to another quarter century of stunning growth? Isn't it just possible that doing, instead, what we're doing, might not be the right solution since we're doing what was done by FDR, who turned a run-of-the-mill recession into what we now call "The Great Depression"?

2) Yes, 4Q08 GDP shrunk more than it has since the early 80s. But in the 70s and early 80s the GDP was like a nauseating roller coaster ride of doom. We've only had 2 quarters of negative growth, and the previous one was a mild 0.5% drop. Despite the claims of self-appointed "recession determiners" (we hereby declare a recession!) that claim the recession started a year ago, GDP growth was mild, but positive, for the first half of last year and we haven't seen the gorge-rising swings seen in the 80s and late 70s. In other words, while a 6+% drop isn't good by any stretch of the imagination - there is some perspective to be gained. And, unlike the "woe is us" mentality back then, many sound economists are saying the recession, without any crazy massive deficit spending orgy, could very well end this year, 2009, and certainly will end in 2010. And here's another little tidbit - even those claiming the spending orgy will do the trick and turn around GDP - remember, people will only have their shoes and socks off in 2009 - the orgy of spending doesn't even start until 2010 and isn't in full swing until after when they claim it will have turned the economy around! Yes, they're claiming that it will fix the economy before it starts!

3) Yes, 4Q08 GDP shrunk more than it has since the early 80s. But back then we also had double-digit inflation (1979, 1980, and 1981 averages of 11.22%, 13.58%, and 10.35%, respectively). Inflation today stands near 0% (0.09% in December and 0.03% in January).

4) Yes, 4Q08 GDP shrunk more than it has since the early 80s. But back then interest rates were in the double digits. Today interest rates are, in bizarre economics professor world, actually negative in some cases. Mortgages, needed to help turn around the housing market by getting buyers into truly affordable housing (that's when they can actually afford the house, not when you pretend they can afford it by acting like they have more income than they do or see that the seller gets less than its worth), are going for about 5% on a fixed 30-year right now. In 1983 such a thing cost your parents somewhere in the 13% range - nearly 3 times as much!

Perspective. It's what for breakfast.

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UPDATE (3-9-09)
I'm not the only one...

Every day's paper brings more Harbingers of Doom. And there are more to come. That's the message from Congress, the White House, various pundits and the ever-talking heads on television. Budget cuts at work, economies at home, the signs are everywhere. We seem to have entered the Age of Eeyore...

This new, young, vibrant president of the United States keeps talking like a pallbearer. He uses terms like Catastrophic and Unprecedented. As if we're supposed to be scared into prosperity, or at least into passing another bailout for Detroit. He tells us we're facing economic conditions unknown since the Great Depression, or maybe the Beginning of Time: "We begin this year and this administration in the midst of an unprecedented crisis that calls for unprecedented action."

Unprecedented? In history? That's all history is: precedents. We may choose to rely on the wrong ones, but after all homo economicus has been through, precedents we've got. Take your pick: The stock market crash of '87, aka Black Monday. The Reagan Recession of '81-82. The Roosevelt Recession of 1937. The Panics of '07 or 1893 or even 1873. Or the long-running bust that followed in Andy Jackson's wake in 1837. Or the New Madrid of economic shocks in 1819. ... Pick your collapse...

Unseen since the Great Depression. A little perspective, please. To restore it, just look around. Does this country look like those Walker Evans photographs of the utterly depressed Thirties?

Let's look at the numbers: In 2008, the American economy lost 3.4 million jobs. Painful. That's 2.2 percent of the labor force.

But from November of '81 to October of '82, 2.4 million jobs were lost -- a smaller number but just as great a percentage of the smaller labor force back then: 2.2 percent.

The unemployment rate last month (7.6 percent) was far below its peak in 1982: 10.8 percent. That's when the groundwork was being laid, thanks to dramatic tax cuts, for the Reagan Recovery, one of the longest-running booms in American history.

Comparisons to the 1930s are even less realistic. In the early '30s, jobs were being lost at triple today's rate. By the time FDR was inaugurated in 1933, a quarter of the country was jobless. Over 10,000 banks would fail that year compared to a couple of dozen last year. That number can't even compare to the more than 3,000 lost in the savings-and-loans debacle of 1987-88.