March 26, 2008


Hold the Hysteria (For Now) (Robert J. Samuelson, March 26, 2008, Washington Post)

A recession is a noticeable period of declining output. Since World War II, there have been 10. On average, they've lasted 10 months, involved a peak monthly unemployment rate of 7.6 percent and resulted in a decline in economic output (gross domestic product) of 1.8 percent, reports Mark Zandi of Moody's If the two worst recessions (those of 1981-82 and 1973-75, with peak unemployment of 10.8 percent and 9 percent) are excluded, the average peak jobless rate is about 7 percent.

No one doubts that the economy has slowed. Many economists think a recession has already started. Zandi is one. He forecasts peak unemployment of 6.1 percent (present unemployment: 4.8 percent) and a GDP drop of 0.4 percent. If that happens, the recession of 2008 would actually be milder than the average postwar recession and milder than the past two, those of 1990-91 and 2001.

Broadly speaking, the story is similar for stocks. So far, their weakness is unexceptional. A standard definition of a "bear market" is a drop of 20 percent or more. Last week, the market was at times close to that. Declines would have to get much worse to qualify as momentous. Since 1936, there have been 11 bear markets as measured by the Standard & Poor's index of 500 stocks, says Howard Silverblatt of S&P. On average, they've lasted 20 months and involved a decline of 34 percent. One was 60 percent (1937-42) and two were nearly 50 percent (1973-74 and 2000-02, the last being the "tech bubble").

Some causes of the present hysteria are familiar: media hype; political finger-pointing, which is always given to exaggeration; and whining from Wall Street types. But there's another large cause: disagreement over whether the economy is highly unstable or whether business cycles are mostly self-correcting.

"This argument is as old as economics," says economic historian Barry Eichengreen of the University of California at Berkeley.

One could almost wish for the power to drop all the folks whingeing about current conditions into 1974, so that they can see what a crappy economy is really like.

Posted by Orrin Judd at March 26, 2008 8:15 AM

Thank you, OJ, for linking this article in print form. I've had problems with the Washington Post site from any computer I've used lately, and I've been missing certain important articles.

Heck, I'd like to transport these people back to 1982, when Reagan did one of the gutsiest things a president of the opposing party could do: Reappoint Paul Volcker, the man who forced recession on Reagan by raising interest rates to near 16%. It would teach folks like Larry Kudlow, who should know better, a lesson about staying with Fed chairmen.

Posted by: Brad S at March 26, 2008 8:48 AM

Bullfeathers. Unemployment is negative. There are so many jobs that people are climbing barbed-wire walls and swimming rivers to get into the country to fill them, remember? More lies from the father (andmother ) of lies. The Media coverage of the so-called "depression" is an embarassment: all stories about grossly obese crybabies in their McMansion houses. having to cut back on resaurant meals and on gas for their Hemmers.

Posted by: Lou Gots at March 26, 2008 9:33 AM

To many of our fellow citizens, 1974 is as far in the remote past as the Great Depression was to us in the 1960's. Does anyone remember that Nixon was a socialist and his measures to control inflation (wage & price controls) exacerbated the problems so by the time poor Jerry Ford was handed the reins, things had gotten so far our of control, that all he could do was call in the PR people and pass out WIN (Whip Inflation Now) buttons.

Then Carter put the icing on the cake with more doom and gloom socialism designed to destroy our economy.

Things looked really bad until the Hollywood cowboy showed up and it was morning in America again.

McCain is hardly Reagan, but he's all we got and we better get behind him -- any alternate scenario can't bear thinking about.

Posted by: erp at March 26, 2008 10:01 AM

First, it is an election year and the Democrats are trying to win an election, hence the "gloom and doom" forecast.

Second, OJ is correct hard times are the 1970's. I just sold our house in another state and we are buying one in our relocated state, interest rates are 5%-6%.

Posted by: pchuck at March 26, 2008 11:01 AM

Rule of thumb: slow down when a Dem is in the White House, recession bordering on depression when a Rep is there.

Posted by: ic at March 26, 2008 12:37 PM


And Republicans and conservatives, like good little sheep, accept the premise you outlined, and have done so for the last 80 years. This is the ultimate consequence of letting your opposition define you.

Posted by: Brad S at March 26, 2008 1:40 PM



(Heck, as you've noted, by the time we get to the point where we can really review the evidence the economists will probably tell us this wasn't a recession at all.)

Posted by: Matt Murphy at March 26, 2008 6:40 PM

Lou Gots:

Is there a soul with any knowledge of history who can possibly read this stuff about "tough," "dismal" economic times without wanting to club these people over the head?

Posted by: Matt Murphy at March 26, 2008 6:42 PM