July 23, 2008


A Depression? Hardly (Robert J. Samuelson, July 23, 2008, Washington Post)

The Great Depression of the 1930s -- the last time the term rightly applied -- was industrial capitalism's worst calamity. U.S. unemployment peaked at 25 percent in 1933; it averaged 18 percent for the decade. From 1929 to 1933, 40 percent of U.S. banks failed. People lost deposits; businesses and consumers lost access to credit. Over the same period, wholesale prices dropped a third, driving farmers and firms into bankruptcy. Farm foreclosures, shantytowns (called "Hoovervilles," after the president) and bread lines followed.

This was a social as well as economic breakdown. Our present situation bears no resemblance to this. In June, unemployment was 5.5 percent, slightly below the average since 1960 of 5.8 percent. It's true that banks and investment banks -- Citigroup, Merrill Lynch, Wachovia -- have suffered large losses. But on the whole, the banking system seems fairly strong. Although profits in the first quarter of 2008 were down 46 percent from 2007, they totaled $19 billion even after $37 billion set aside for loan loss reserves. Overall corporate profits are still running at a near-record annual rate of $1.5 trillion.

As yet, the present economic slowdown does not even approach the harshest post-World War II slump. The back-to-back recessions of 1980 and 1981-82 (as dated by the National Bureau of Economic Research) constituted, for most people, one prolonged downturn. Unemployment peaked at 10.8 percent in late 1982. In 1981 and 1982, housing starts were down almost 50 percent from their 1978 peak. From 1979 to 1982, the economy stagnated; output lurched down, then up and then down. There had been nothing like that since the 1930s. [...]

The paradoxical thing about today's economy is its strength. No kidding. Consider all the hand grenades lobbed at it. Higher oil prices. The housing implosion. Large layoffs in affected industries: autos, airlines, construction, mortgage banking. The "credit squeeze" triggered by losses on "subprime" mortgages. Despite all that, the economy hasn't collapsed. It's merely weakened. Output in the first quarter of 2008 was actually 2.5 percent higher than a year earlier.

One does sometimes wish for the power to Life-on-Mars people who bitch and moan about the current 25-year expansion.

Posted by Orrin Judd at July 23, 2008 8:39 AM

The people who complain, when banks suffer losses, that the economy is failing, are likely the same people who complain, when banks earn record profits, that the economy is failing.

Posted by: james at July 23, 2008 9:05 AM

Straw Man of an argument here. Nobody is complaining about Reagan/Volker style economic expansion (except the left).

The outrage lies in the fact a select few distored the housing/credit market to such a degree our entire system is at risk.

Average Americans, read conservatives, have really gotten screwed. For many people it is over.

Posted by: Perry at July 23, 2008 1:22 PM

The banks earn record profits, the economy is thriving, the professional complainers complain the "income gap" is widening. The complainers would lose their jobs and self-worth if they stop complaining.

Posted by: ic at July 23, 2008 1:36 PM

The notion the system is at risk is the straw man. Markets go up, markets go down. We have too little housing to keep up with our population growth.

Posted by: oj at July 23, 2008 4:58 PM
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