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How Bad Is It?
HOW BAD IS IT?....Andy McCarthy asks:
The Worst Economic Crisis Since the Great Depression?
That's the Obamanomics mantra. Should be we really be letting that slide by without a response? Going to high school in the Carter Seventies, I remember sitting in the gas lines. Toward the end of Carter's tenure, interest rates were around 20%, inflation was at close to 14%, and unemployment was just over 7% (it soared over 10% before the Reagan recovery kicked in).
I don't mean to minimize the straits we're in, and I appreciate that things are likely to get worse — maybe a lot worse — before they get better. But aren't Democrats skipping over a pretty awful bit of history when they say this is as bad as it's been in 75 years?
Well, look: interest rates hit 20% because Paul Volcker put them there in order to fight inflation. But it's not inflation that that's the measure of a recession, it's output growth and employment. And at least at the moment, the projections for output and employment over the next year are about as bad as they were in 1980-82 — and that's even without an oil shock to kick things off. Add to that the fact that the financial system is collapsing worldwide, entire countries are going bankrupt, a couple of dozen really big banks have gone bust, and credit markets are still frozen despite trillions of dollar in various interventions from national governments, and yeah, I'd say this is the worst financial crisis since the Depression. Does anybody really want to take the other side of that debate?
No.
In fact the argument is that due to the global scope and the fact the real culprit here is deflation, not inflation, I'd say those 75 year claims are entirely justified.
I remember the early 80's recession very well. One of the reasons I've ferociously loathed Bush and the rest of the wingnut crew running things this past 8 years was that it was obvious they risked bringing back a repeat of that time. The form isn't quite the same (the early 80's were a self-imposed fever aimed at getting rid of the systemic hyperinflation of the 70's, while our current mess is an involuntary collapse of the corrupt house of cards unregulated financial shysters were allowed to build), but even if it's only just as bad as the Reagan-era bad times, those who allowed it to happen ought to be banished from political influence forever.
There is no mention of GDP growth, which is the most important stat. There were a couple of years of negative growth in the late 70s-early 80s, but nothing exceeding negative 2%.
This time, however, we could see significant shrinkage. So it'll probably be worse.
I can't speak for 75 years ago, but in the early '80s, about 80% of local architects had nothing to do and went out of business. The early '90s were tough too, but the early '80s is as bad as I've personally ever seen it. Until now. All the local architects are twiddling their thumbs again with nothing to do. Builders and subcontractors are next. When new construction dries up, it hits architects' paychecks first. The things they don't tell you in architecture school...
There's also the dishonesty of calling it Obama's mantra when in fact, lots of people all over the ideological map have been calling it that. The real question is what would be bad about letting that "slide by"?
One thing's for sure, there's no sign of conservatives forging a political message that might resonate with, say, the tough times the people in the rust belt are experiencing. Enjoy your generation out in the cold, guys!
Kevin,
You fell into McCarthy's trap of engaging stupidity with substantive arguments. He doesn't give a crap about anything but laying the foundation for limiting the perceived success of the Obama administration.
He should go back to ripping Eric Holder....
A count of hunger swollen stomachs of the nation's children is needed to determine if the current failure of free enterprise is as bad as the failure known as the Great Depression, but the current market failure has not yet worked its way through the entire economy. In two or three years malnutrition may become a leading cause of childhood mortality.
All substantive issues to the side, seeing as Gov. Carter wasn't even sworn in till '77, wouldn't that be the Nixon/Ford Seventies?
Well I think most of you guys grew up after the depression of the 30s, I didn't. The 30s were far worse than what we have experienced so far. I grew up in Orange Ca. Most of the stores were closed. The town was full of unemployed men.
We could not afford meat. We had no phone. We ate a lot of oatmeal. My grandfather loaned us $3,000 to buy a small house. Through extreme effort working at multiple difficult jobs, my dad managed to pay off the loan and feed us. He never got another loan the rest of his life.
This is depressing. Can we have catblogging a couple of days early, since tomorrow is a holiday?
Thank you.
In any case, isn't the usual refrain: "the greatest financial crisis in 75 years"?
There's a difference.
Kevin, offtopic but a followup to a thread from a few days ago: Note to David in NY, this is not related to this thread, please take a purple pill and skip right over.
Reuters is reporting that Pelosi/Boxer/Schumer are pushing for a return to the Fairness Doctrine. Obama is claimed to be against that, but supports something similarish called "localness." His FCC Transition guy, Henry Rivera is in favor of bringing back the fairness doctrine.
Clinton Chief of Staff and CAP founder John Podesta is for bringing it back and has presented his ideas to Senators. (I like Podesta, but the worse sentence in the article claims he wants to fine broadcasters and give the fines to CPB, which overseas and funds NPR. I think it's time for us to cutloose NPR and let them bring out their inner conservative that they try but fail to hide.)
In light of this article, it's not clear to be the Limbugs don't have a point, and that our position, no one really is working to bring it back, is entirely accurate.
Note to David in NY, you can begin reading again, sorry if this comment ruined your day.
Reuter's story here:
http://fe13.story.media.ac4.yahoo.com/news/us/story/nm/20081126/tv_nm/us...
Once again David in NY, I must humbly beg your forgiveness for making your tum-tum upset with this distraction.
Glenn:
I don't doubt what you say is true. But the point is that the stock market crash was in 1929 and, as you admit, things didn't get REALLY bad until the early to mid 30s. That's what has many people concerned. If this meltdown of the world financial systems is as bad (or worse) than what happened in 1929, what's in store for the next few years?
Do people think the stock market crashed and everyone immediately got in line for free apples and jumped on boxcars?
In 1929, the stock market crashed, which inconvenienced some financiers and very rich people and sparked some bank runs...but most folks shrugged it off.
Only later did the financial crisis spread, almost all banks crashed, and the entire economic system fell apart. Only then did we begin to see food rotting in the fields as hungry people starved in the city, and factories sitting idle amidst 30% unemployment.
The goal here is to make sure things don't crash and burn like the economic indicators say they should. We're in 1929, and with the benefit of hindsight, we're desperately trying NOT to to go 1930 and 1931 or, god forbid, 1932.
It's kind of like when a doctor tells you you have incredibly high blood pressure. You may respond "but I feel fine!" But if you don't take your medicine, you're gonna die.
What an idiot.
I started driving the year that carter became President. I never waited once in a gas line (grew up in Michigan."
I do remember gas lines when I was 12 or so.
I know that there were some gas lines when Carter was prez, but they were not as bad as the Nixon/Ford gas lines.
It frustrates me that Repubs blame everything that happened in the entire decade of the 70s on carter. I heard Laura Ingraham on her radio show state that "Jimmy Carter's" WIN butoons were the stupidest thing ever done by any president. I heard a rube at the local bar say that Carter pulled us out of VietNam when he found out that we might win.
Reuters is reporting that Pelosi/Boxer/Schumer are pushing for a return to the Fairness Doctrine.
Best news I heard all day. Destroying the Wurlitzer will be an absolute necessity of we're not to be buried in lies for the next four years.
I heard a rube at the local bar say that Carter pulled us out of VietNam when he found out that we might win.
Do you think he thought of that himself? This sort of crap is a constant poison coming from the right wing's propaganda machine. If you fail to take it on now (when it's weakest) you just guarantee it will be back strong later.
Considering all elements from the lowly potential home buyer, through the construction, to the lofy heights of "financial innovation", the collapse of the real estate bubble will ultimately remove 20% off of the GDP.
Add this to the fact that the US economy has not yet found a competitive place in the new world economy.
Add this to the fact that the consumer and government are in bad financial shape.
It'll be worse than the Great Depression. The 80's will be a mere cold to this pneumonia.
The situation did improve somewhat in the late 1930s when Roosevelt's infrastructure programs (WPA, dams, roads, ect) took effect, people began to pay their bills and put food on the table. However, it was the Japanese at Pearl Harbor that solved the depression. Nowadays, it seems everybody wants the government to pay their bills without working for it.
People laid off during previous recessions could reliably find work at lower paying jobs in retail. There are few jobs in retail now, even during the holiday season, and there will be fewer in the new year. With almost all of government assistance going to large finance companies, those without jobs now will be in very difficult, if not desperate, times next year.
Sitting in the middle of the current crisis I think its impossible to say how bad it is/will become. Its a silly argument because we know its very, very bad and that's what we need to know from a policy standpoint.
I don't think its completely unreasonable to think the 80-82 recession was worse, but we can't know yet and McCarthy pretty clearly is just setting up the argument for political attack purposes. "Things weren't bad until those damn democrats took over. Its their fault the economy is on the verge of depression and 8 years of Bush economic policy and deregulation had NOTHING to do with it. Its also clinton's fault somehow, and probably FDR."
It took WWII spending at $4 TRILLION to get us out of the Great Depression. That was when we manufactured everything domestically. Manufacturing is now 15% of the GDP so essentially we don't make anything anymore.
Any guess on what the next Ponzi scheme can be? We're already $14 TRILLION in the hole!
Maybe it's not quite as bad as 1929, but it's still pretty f***ing bad. Obama has to stop the bleeding somehow and stabilize the economy. *Then* re-regulate walll Street; maybe he could call it "The New Deal 2.0"
Well I think most of you guys grew up after the depression of the 2008, I didn't. The 2008s were far worse than what we think. I grew up in California. Some of the stores were closing. The town was full of out of work mortgage brokers and Mexicans.
We could not afford to eat out. We had no TIVo. We ate a lot of pasta. My grandfather loaned us $500,000 to buy a small house. Through extreme effort working at multiple difficult jobs, my dad managed to pay off the loan and feed us. He never got another loan the rest of his life.
I remember the Carter years just fine, as well as gas rationing (odd days vs even days) stagflation and so on. (I was well past high school, in fact I got a job and moved out of the house during that period). There was an overwhelming sense of running-in-place then, what with inflation and high interest rates, but nothing like sliding backward toward the edge of a cliff. We're definitely headed for worse than we had then.
Pssst. Invest in printing presses.
1982 was the worst downturn in my lifetime. Senator Moynihan called it "the great recession". Reagan was widely viewed as out of touch.
Said Reagan as the unemployment rate went to 10.8%, "Is it news that some fellow out in South Succotash someplace has just been laid off, that he should be interviewed nationwide?" This comment was "proof" that Reagan didn't get it.
The midterms of 1982 was the end of the Reagan Revolution, domestically at least. Democrats always had a majority in the House, but led by the DEMOCRAT Phil Gramm, the boll weevils gave Reagan a working majority in 1981 & '82.
The bottom was in late 1982, and by 1984 people were ready for the "Morning in America" spin.
Martin at 1:21 is correct. I will add that McCarthy is dripping in well thought out deceit. This is push back.
Things really suck and Americans seem to be willing to give Obama room to try things his way so the NRO guys are beside themselves. Unable to argue the facts, they are reaching for an alternative reality.
I think we should be careful to distinguish between how bad things are right now compared to the worst previous crises, and how bad things are now considered as a prelude to an historic crisis. Measured by the suffering -- job loss or debt -- of the median income citizen right now, periods in the 70s or early 80s were objectively worse. It may be that things are going to get a lot worse yet before they get better for the average citizen, but that's so far just a guess about the magnitude of the current crisis. Measured by high finance, things are already worse than anything since the depression, but the vast majority aren't there yet. And who knows, maybe we'll policy our way out of this one yet. In any case, it's quite logical to say for these reasons that things aren't as bad as the 70s -- yet.
In 1929, Europe was in debt to us, and when they couldn't afford to buy our stuff, we suffered, but they suffered more (see Weimar hyperinflation in Germany, collectivization in Russia). In 2008, the US is in debt to China, and we can't afford to buy their stuff.
In 1946, US businesses realized that they survived the war, while their European competitors didn't. They could afford the taxes to make up for New Deal / WW-II spending. How are we going to pay the taxes needed to make up for current spending?
If the banks are afraid to lend because they expect growing deficits to produce inflation, and inflation allows debts to be repaid with cheaper money, then every deficit-enhancing action increases the fear, and makes lending LESS likely, just the opposite of stated policy. We're trapped.
You simply cannot completely freeze the world financial markets, destroy many tens of trillions of dollars in asset value and wealth, all consistent with chart patterns that confirm a grand secular bear market with much lower to come later,and not get a recession which will be longer and deadlier than those since WWII. Historians will argue whether it was a depression or not, and those of us who live to the other end will read all of that with interest.
Frankly, I think it is a good time for Kevin to take up his "peak oil" theory.
The price for a barrel of peak oil just posted for $ 47.25 - and that doesn't hold sway with Kevin's Drum's peak oil theories, even with a bunch of Mideast oil pirates, not that anybody doesn't need cheap black-market crude oil or anything right now.
I told you Kevin, there was no PEAK OIL.
But don't worry, oil will hit $ 20 dollars a barrel soon enough - and like I said, Kevin didn't know shit about peak oil and he still doesn't know shit.
There was actually something like a minor oil shock that affected the crisis. And more may come.
Perhaps this will be worse than the great depression. America has relied on the "growth" economy, and the rest of the world has followed suit. Well, how is it possible to have endless growth forever to infinity? It is not. We are far closer to the limits of sustainability than we were in the 30's. Right now, it seems everyone is focused on fixing and maintaining the growth economy. However, what we need is to shift to a sustainable way of living which does not rely upon growth and an ever-increasing GDP.
"Add this to the fact that the US economy has not yet found a competitive place in the new world economy."
That's the stupidest thing I've read all week.
"It took WWII spending at $4 TRILLION to get us out of the Great Depression. That was when we manufactured everything domestically. Manufacturing is now 15% of the GDP so essentially we don't make anything anymore."
There's nothing magical about manufacturing. I just don't get this fetish people have for manufacturing. I mean, I do understand it, I just don't understand why more people don't know any better. It's exactly the same intuition that leads people to believe that we should be on the gold standard and that money without something "real" backing it isn't actually worth anything; but I guess that the reason that most people aren't gold standard nuts is merely because it's been ridiculed so much. They know they shouldn't think that way, although their flawed, commonsense economics intuition that tells them that manufacturing is the only "real" economic activity that creates wealth is the same one that should be telling them that money should be backed by something of "real" value.
Services create wealth just like manufacturing does. It's no less economically "real". What do the Swiss manufacture? Yet they are a relatively wealthy society and have been for a long time. Their economy is endangered because of the financial crisis, but China's manufacturing economy is also endangered because of the sudden drop in demand.
As for all these concerns about stimulus adding to the debt, well, I'm an old liberal deficit hawk from way back. And while there's no denying all the ways in which large amounts of debt have negative economic effects in the long-run, it's also the case that we've managed quite well with amounts of debt that, when I was younger, people thought would have crippled the economy completely. The US economy can survive a large amount of debt for a variety of reasons. It's not optimal in the long run, but it is optimal during a depression. You can't actually have the stimulus without the debt. The debt itself is part of the stimulus.
I don't think "Anonymous" has the slightest knowledge of economics, much less peak oil. A sudden drop in demand is going to cause prices to fall, peak oil or no. Once world demand resumes -- which may not be for years -- we'll see prices climb back to $200/barrel again.
Once world demand resumes ... we'll see prices climb back to $200/barrel again.
Or as soon as we as a nation again turn our backs on alternative energy, because it supposedly doesn't make economic sense.
I'm not a peak-oil doubter. I just don't think a decline in demand entirely explains the recent drop in prices. There could manipulation going on, as well.
Keith M Ellis: There's nothing magical about manufacturing. ... Services create wealth just like manufacturing does.
True, but manufactured exports are the only thing that can realistically close our still enormous trade deficit.
Our vaunted surplus in service exports has stubbornly remained a small fraction of our deficit in manufactured goods and mineral resources. This is unsurprising, since services are generally labor intensive and require less capital, and often require less institutional (as opposed to individual) expertise. They also generally require less infrastructure and have lower requirements in terms of local supplier networks. Ergo a bunch of people in India with nothing more than a few cheap computers, an Internet connection and a backup diesel for electricity can export services like custom software development and financial analysis.
What else can we export? We hold our own in agriculture, but we won't suddenly have enormous surpluses like Brazil.
And while we should obviously reduce our foreign oil habit, I'll doubt we'll ever have a surplus in mineral resources. Leave that for sparsely settled countries like Canada and Australia.
Has China killed our manufacturing? Certainly we'll never compete in clothes, toys, and other low-end items, but what about more sophisticated items? Half of our Chinese imports are actually intra-company transfers of "American" MNC's. Worse, years of currency manipulation and tolerance of Chinese protectionism (e.g. 30% tariffs on car parts) have hamstrung us.
Prosperous countries like Germany and Japan manage trade surpluses in manufactured goods, and I don't see why the US can't.
There could manipulation going on, as well.
No doubt some hanky-panky was going on with oil futures, especially as the price climbed above $100. But unless we can bring the developing world with us into an alternative-energy future, resumed increase in demand -- and thus price -- is inevitable. An alternative is an even greater swing toward coal as a fuel source, with direr implications for CO2 and other airborne pollutants.
This, from Sullivan, reveals an unfortunate credit problem with government bailout efforts:
http://andrewsullivan.theatlantic.com/the_daily_dish/2008/11/the-catch.h...
About oil prices: normal changes in supply and actual consumer demand cannot possibly explain swings to about 140/bbl and then back down to 50/bbl. The "financialization" of markets, the speculators, the use of commodities themselves as investments instead of the profits of the producers etc, is responsible. We (the rest of us) can't afford for things to happen this way, and Obama must choke off the stranglehold of wranglers on commodities.
What crisis are we talking about? A few banks went under but barely anyone skipped a beat. Everything was promptly guaranteed and the core of the financial system has been rescued with unlimited guarantees. I suppose Americans in 1929 and 1974 were idiots who didn't understand the magic of printing unlimited money and guaranteeing everything in sight, so they suffered massive pain. Those masochists! We don't have that problem now 'cos we are pampering the reckless financial institutions with hundreds of billions of free money.
The pundits are calling it a crisis in anticipation of hard times to come, but the government is aggressively throwing newly printed money at those anticipated problems. If we had a real crisis most of the banks would have declared bankruptcy by now because of the choices they made. Do you see that happening? How can it be a crisis when most of the bad actors are still doing whatever they were doing before? How can it be a crisis when folks who lied on their mortgage applications are getting taxpayer subsidized help? The real crisis so far is for folks who were responsible and played by the rules.
IMHO, we had a potential crisis but that is being addressed with massive deficit. The real crisis will probably occur as a result of this massive moral hazard and massive deficits. And I have no clue how big/bad the real crisis is going to be. Maybe the government knows how to solve all our problems. Now if you excuse me, I have to go ROFLMAO at that thought. It is not polite to ROFLMAO with other people around.
I especially like how he counts the unemployment rate under Reagan as part of the Carter economy, while the recovery is Reaganite.
However, Mr McCarthy's main idiocy is his inability to understand the difference between nominal and real, that is, his idea that moderate inflation is as bad as a severe recession.
I remember collecting 17.5% interest on my CD's in the Carter boom times. Now I get something like 0.02% on my savings account.
A declining US birthrate tells a lot about the state of the economy.