The Economy Is Bad, but 1982 Was Worse

New York Times ^ | January 20, 2009 | DAVID LEONHARDT

[expat_panama]

You often hear that we are now living through the worst recession since the early 1980s, and the comparison is not wrong. But it’s ultimately unsatisfying, because it is a little too vague to be useful.

Is the economy only a little worse than it was in the last couple recessions, as some have said, and still a long way from the dark days of 1982? Or are we instead on our way toward something that may even approach the severity of the Great Depression?

[snip]

The ranks of unemployed and underemployed, controlling for the size of the population, were much larger in 1982 than today.

[snip]  

The recession of the early 1980s doesn’t have a catchy name, and almost half of Americans are too young to have any real memory of it. But it was terrible — qualitatively different from the mild recessions of 1990-91 and 2001. The first big blow to the economy was the 1979 revolution in, which sent oil prices skyrocketing. The bigger blow was a series of sharp interest-rate increases by the Federal Reserve, meant to snap inflation. Home sales plummeted. At their worst, they were 30 percent lower than they are even now (again, adjusted for population size). The industrial Midwest was hardest hit, and the term “Rust Belt” became ubiquitous. Many families fled south and west, helping to create the modern Sun Belt.  

Nationwide, the unemployment rate rose above 10 percent in 1982, compared with 7.2 percent last month. But that rate has a couple of basic flaws, as I’ve discussed in previous columns. It counts people who have been forced to work part time, even though they want to work full time, as fully employed. 

[snip]

[bronxboy]

You can not compare the situation now with the 80’s. Inflation was the problem...the upper tax bracket was what 80%? We are in a deflationary period now...apples and oranges. What worked in the 80’s probably won’t work now. I have heard conservative economist state that the only solution is to throw money at the problem and pray we make it to inflation.

[bronxboy]

The cost of the S&L mess was about 123 billion. We gave more money than that to AIG...not to mention what the fed has spent. Even adjusting for inflation...this is the most expensive mess in the history of our country.

[expat_panama]

"...the lowest increase since 1954..."

--and we all know what a terrible year '54 was

So now we got increasing prices meaning that they're decreasing.  Look, if you want things to be bad, look at the fact that November's monthly CPI drop was the worse since 1932!  Then again, December's was not even as bad as 2005 so maybe we won't talk about that.

"...a time you've said it wasn't bleak?"    "Not recently."

Have you ever been happy about the future in any of your posts, ever?

[Mase]

Having just finished school in '82, I share the author's view about just how gloomy things were back then. Even though this article is upbeat by NYT standards, he does manage to find enough doom and gloom to remind me to consider the source.

The author claims The ’70s get a bad rap, and deservedly so in many ways. But median family income still rose 2 percent during the decade, after adjusting for inflation. Over the past decade, it has fallen. Huh? How does he explain real per capita consumption increasing by more than 2% annually over the past decade? He wants us to believe that median family incomes have declined even though productivity is rapidly increasing. Sure.

Me thinks he's forgetting that much more of our total compensation today comes in the form of benefits and conveniently forgets to include them.

Also, I'll bet he's using the CPI to adjust for inflation rather than the Implicit Price Deflator which, lo and behold, overstates inflation and understates wage growth. The net result is that wage growth appears to lag behind productivity growth even though workers are becoming more productive. Well done NYT's.

[bronxboy]

All those S&L problems are nothing compared with the leading banks in every country on the verge of failure.

[A.Hun]

Have you ever been happy about the future in any of your posts, ever?

Yes, I actually believed that the stock market was fairly valued 18 months ago and that our economy's fundamentals were relatively strong compared to 2001-2004.

I got over it though.

[Alberta's Child]

Interesting stories on this thread. I was just starting high school back in 1982, so I didn't know too much about "the economy" and how good/bad it was.

I'd highly recommend a book called Liar's Poker (by Michael Lewis) to anyone who wants to get a good historical sense of what the 1980s were all about from a financial standpoint. The book is basically an anecdotal accoount of Lewis' days as a bond salesman for Salomon Brothers, but he goes into great detail about the underlying economic trends at work back then in a number of different areas (junk bonds, mortgage bonds, the S&L crisis, etc.).

[Alberta's Child]

Very good summary, Bronxboy.

There's one element of the S&L crisis that you didn't mention, though. Many of the "bad" loans these S&Ls made -- and "bad" real estate development deals they got involved it -- only turned "bad" as a result of the 1986 Federal tax reform. This is why the loosening of Federal regulations in the early 1980s (to help banks cope with the inherent problems they faced with rising interest rates) didn't present any problems for several years.

[dalereed]

” How does he explain real per capita consumption increasing by more than 2% annually over the past decade? He wants us to believe that median family incomes have declined even though productivity is rapidly increasing.”

Real simple, people borrowed on their home equity and blew it on non important things and finally were unable to make the oayments which caused the housing crash.

There are more forclosures from re finances than purchases.

[hiredhand]

The problem is that all the experts are using past data to try and forecast the outcome of this situation without properly acknowledging that this problem is vastly different than anything in the past. I think it's a completely inaccurate assumption to view what's happening now with respect to anything from the past other than in broadest terms.

As a nation, we're watching the Perfect Storm. In 1982, we didn't have 75% of the working public living paycheck to paycheck, having three credit cards maxed out, living in houses that they couldn't afford to begin with...requiring the full time employment of both husband and wife of the house. Banks pushing and selling ARMs to welfare recipients was unheard of, and we still had a good base of older people who could impart at least some sense of fiscal responsibility to the next generation.

What we're seeing now isn't really even the problem per-se, but rather an overall representation of the problem. To properly understand the problem, we have to look back on men like the one who figured out how to securitize home loans, and then understand the intertwining of things such as this, Fannie Mae, Freddie Mac, and the ones who ran them into the ground while getting rich at taxpayer expense, all under the approving eye of our government.

I respectfully disagree with you. We are in grave danger as a nation at this point and what can and will happen is anybody's guess at this point. But what we're seeing now can't truly be compared accurately to anything in the past.

Worse than this, the very types, and in some instances the SAME people are now in power over our nation. So whatever would have otherwise happened...which would have been BAD anyway, will now be multiplied on a scale that none of us can comprehend.

[litehaus]

"the ones who ran them into the ground while getting rich at taxpayer expense"

The esteemed Maximum Muddy Waters of Kalifornicate says FRANKLIN RAINES did a terrific job !!

[litehaus]

"the ones who ran them into the ground while getting rich at taxpayer expense"

The esteemed Maximum Muddy Waters of Kalifornicate says FRANKLIN RAINES did a terrific job !!

And he deserves his million a year retirement--along with the 100 mil he made while there...

[Lurker]

The recession of the early 1980s doesn’t have a catchy name

Sure there was. It was the "Carter Catastrophe".

L

[Mase]

Real simple, people borrowed on their home equity and blew it on non important things and finally were unable to make the oayments which caused the housing crash.

I don't think so. Our debt to income ratio was pretty constant over the past 10 years until this last year. Our household net worth skyrocketed during that same time. American households mired in debt is a myth. Total real compensation for American families is rising. It's just that we're getting more of our increases from benefits than from wages. I'm not surprised that the NYT's would (intentionally?) mislead their readers regarding this. Makes the Bush years look bad and keeps the BDS alive. Obama is going to need a lot of BDS to explain away the even bigger mess he's planning for us.

[dalereed]

“Our debt to income ratio was pretty constant over the past 10 years until this last year. Our household net worth skyrocketed during that same time. American households mired in debt is a myth.”

That’s a flat out lie unless you are speaking only for yourself!

[hiredhand]

Raines did do a terrific job. But Chris Dodd, Barney Frank, AND Barrack Obama also received sweetheart loans from Countrywide Mortgage before it went bust.

As I was saying...this time is different. Everybody needs to realize this and just suck it up, because pretending that things are any different at this point will serve no useful purpose and will only make things worse.

[expat_panama]

"American households mired in debt is a myth.”   "That’s a flat out lie..."

Hey Dale, don't be so hard on us.  

Some of us actually need to know this kind of finance stuff so we can run our businesses and feed out families.  Now, if your case is different and you're free to believe whatever bad things about America you want, then that's fine and more power to you, but it doesn't mean we're bad people just because we have to check this stuff out.

[expat_panama]

I actually believed that the stock market was fairly valued 18 months ago...

--but never put it in writing in a post.    Makes us wonder what other unstated beliefs you have.

[Mase]

“Our debt to income ratio was pretty constant over the past 10 years until this last year. Our household net worth skyrocketed during that same time. American households mired in debt is a myth.”

That’s a flat out lie unless you are speaking only for yourself!

Yeah, whatever.

As you might be able to see from this graphic, our debt to income ratio remained between 18%-19% from 1997 through most of 2006. This happened during a time when interest rates were dropping like a stone and home ownership was skyrocketing. Is it more advantageous for people to increase their debt when rates are low or when rates are high? The fact that the debt to income ratio remained within a tight range during that time makes it clear that you have absolutely no idea what you're talking about.

If you have the time (and a calculator) you might want to go to the Fed's Flow of Funds reports and look at just how much our net worth increased during that same time period. Given that net worth is calculated by subtracting liabilities from assets, you're going to have a hard time proving to us that American consumers borrowed their way into doom. Maybe in your world that's true but for the vast majority of Americans it is not. But you believe what you want.....

[cva66snipe]

Don't forget CH Butcher, Jr. also headed up the C&C Bank “chain” that included numerous C&C Banks of various counties, including the headed by Jake & CH’s father Cecil Butcher, Sr. The jump in interest rates and recession caught them over leveraged.

Didn't C&C get merged in with Jakes takeover and buying of Park National and Hamilton Banks? I know they started out with C&C like you said. Before that they had an oil company where suposidly all the money came from. Not buying that either.

Only one local person I know of got that rich in such short time and he has an untarnished reputation. That man built a Gone with the Wind type mansion in Knoxville and paid cash for ir as he went. He owns a large surgical instruments and medical supply company in the area and is high respected.