Obama's Rhetoric Is the Real 'Catastrophe'
In 1932, automobile production shriveled by 90%.
President Barack Obama has turned fearmongering into an art form.
He has repeatedly raised the specter of another Great Depression. First, he did
so to win votes in the November election. He has done so again recently to sway
congressional votes for his stimulus package.
In his remarks, every gloomy statistic on the economy becomes a harbinger of
doom. As he tells it, today's economy is the worst since the Great Depression.
Without his Recovery and Reinvestment Act, he says, the economy will fall back
into that abyss and may never recover.
This fearmongering may be good politics, but it is bad history and bad
economics. 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.
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.
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.
Mr. Obama's analogies to the Great Depression are not only historically
inaccurate, they're also dangerous. Repeated warnings from the White House about
a coming economic apocalypse aren't likely to raise consumer and investor
expectations for the future. In fact, they have contributed to the continuing
decline in consumer confidence that is restraining a spending pickup. Beyond
that, fearmongering can trigger a political stampede to embrace a "recovery"
package that delivers a lot less than it promises. A more cool-headed
assessment of the economy's woes might produce better policies.
Mr. Schiller, an economics professor at the University of Nevada,
Reno, is the author of "The Economy Today" (McGraw-Hill, 2007).
|