Below, David Leonhardt prevents a more complete unemployment rate for
the present which is "above 13 percent" and contrasts it to a
similarly-calculated number for 1982 of 16.3 percent. <
This is a good article, but misses a key element, i.e., the meaning of
unemployment for those impacted: we should care about the "cost of job
loss." I don't have figures, but it seems to me that the meaning of
the current unemployment rate (however measured) is greater than it
was in 1982. For example, unemployment insurance was more generous,
while more of those laid off could expect to be recalled. Further, the
financial hit of employer-provided health insurance is larger. More
importantly, people have much higher debt-to-income ratios now. Those
ratios were historically high even before incomes started falling.
The New York Times / January 21, 2009 / Economic Scene
The Economy Is Bad, but 1982 Was Worse
By DAVID LEONHARDT
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?
Without more specifics, it is hard to judge the staggering stimulus
numbers being thrown around Washington. It is hard to know how tough a
task the Obama administration is facing — and whether it's running the
risk of being too timid or too aggressive.
I thought it would make sense to get some clearer historical
perspective, and the economists at the Bureau of Labor Statistics were
nice enough to help me do so. In the last week, they helped me put
together a broad measure of the job market — one including both
official unemployment and more subtle kinds — stretching back to 1970.
Since the job market covers the entire economy and affects families in
tangible ways, it seems to be the single best yardstick.
And it shows, for starters, that the economy is not yet as bad as it
was in the early 1980s. It's not even that close to being as bad. The
ranks of unemployed and underemployed, controlling for the size of the
population, were much larger in 1982 than today.
But economies are a little like battleships. They turn slowly, and you
can often tell where they are going before they get there. At The New
York Times, we're discouraged from using the word "unprecedented."
("Use the term rarely and only after verifying the history," the
stylebook says.)
So suffice it to say that the serious recent declines in retail sales,
business spending and employment make it highly unusual that the
economy will improve anytime soon. The job market will almost
certainly continue to worsen for most of 2009. Even if the much-needed
stimulus bill passes, the economy is likely to end the year in roughly
as bad a shape as its 1982 nadir. Which is saying something.
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.
[some have called the 1982-83 slump "the Great Recession."]
The first big blow to the economy was the 1979 revolution in Iran,
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. It also considers people who have given
up looking for work — so-called discouraged workers — to be no
different from retirees or stay-at-home parents. They simply aren't
counted.
Years ago, the Labor Department responded to criticism about these
issues by creating several broader measures of joblessness.
Unfortunately, they don't exist prior to 1994. But the department was
doing similar work in earlier years, which allows the economists who
work there to make estimates about how to compare the various survey
categories over time. I took these estimates — and they are estimates,
not official statistics — and created a measure of unemployment that
goes back to 1970.
Including discouraged workers, the measure shows that the unemployment
rate was 7.6 percent last month. Another 5.2 percent of the labor
force was involuntarily working part time. These two groups bring the
combined rate to 12.8 percent.
Even this is an understatement, because the Labor Department's
definition of discouraged workers is a little narrow. To be counted,
somebody must have looked for a job in the last year. And there appear
to be several hundred thousand people — mostly men — who stopped
looking for work more than a year ago but would gladly take a
good-paying job if one came along. They would lift the rate above 13
percent.
As bad as the number is, it is still not that close to its 1982 peak
of 16.3 percent (or anywhere near its Depression levels, which were
probably above 30 percent). The early '80s really were that bad.
So why are public opinion polls showing Americans to be even gloomier
about the economy today than they were back then? I think there are
two main reasons.
First, the economic expansion that just ended wasn't as good as the
1970s expansions. 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.
Second, people seem to understand that the worst is yet to come — that
the economy has not yet worked off its excesses.
A good reminder came in a recent report on the Manhattan real estate
market by Goldman Sachs. It looked at apartment prices relative to
rents, incomes and mortgage rates and concluded that prices were 19 to
44 percent higher than historical norms. Jan Hatzius, Goldman's chief
economist, was careful to say that prices won't necessarily drop by
that much. But we should know by now that old-fashioned economic
fundamentals deserve some respect.
In much of the rest of the country, home prices also still have some
amount to fall. Banks still have more losses to acknowledge. Companies
have more jobs to cut. Some time this year, one in six workers may
find themselves unemployed or underemployed, just as was the case in
1982.
The biggest risk is that these problems will feed on themselves and
make the situation even worse than now seems likely. That has been the
pattern for the past year and a half. If it continues — and it will
without a big stimulus package — the economy really could end up in
worse shape than it's been in more than 60 years.
Email: [email protected]
Copyright 2009 The New York Times Company
--
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
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