Monday, July 12, 2010

This Recession is Not So Great

I'm ordinarily a huge Robert Samuelson fan, but this morning I've got to demur.  In this discussion of the current recession (known for some reason as The Great Recession), Mr. Samuelson spends a few paragraphs talking about the recession, and then toward the end, he says this:

  "Another theory -- more powerful, I think -- is that the Great Recession, though jarring to almost everyone, has been most disruptive and disillusioning to those who were previously the most protected. It punctured their cocoons so unexpectedly that they became more cautious and fearful, whereas those who even in good times faced job loss and income shifts (many blacks, the young and the poor) were less surprised. One legacy of the Great Recession is that insecurity and uncertainty have gone upscale. People feel more exposed. They tend to plan for the worst rather than hope for the best. Their reluctance to make major purchase commitments (a new car or home) validates their pessimism by retarding recovery." 

Reading the article, I come away with the sense that Samuelson has bought into "the Great Recession" hype in a big way.  I'm here to dispute that hype. Front and center for me is what Samuelson brings up in the paragraph above without really meaning to do--and that is, Americans are convinced this recession is "Great" because of how it makes us "feel" and how it makes us "plan", rather than what it does to us on an individual, everyday basis.  Looking through THAT lens, this recession doesn't stack up. 

Ninety six percent of mortgage holders are making their payments.  Ninety percent of those who wish to work (represented by those actually working or seeking work) are working.  One hundred percent of those who wish to buy a house or borrow money for any other reason will do so at historically low mortgage rates.  One hundred percent of those who purchase goods are doing so in historically low inflation.  The point here is that the while the "Great Recession" has been a terrible thing, its impact has been far less pervasive than the recession of the early 80's.  I've talked about this before, remember--the one with double digit unemployment, double digit interest rates and double digit inflation--ALL AT THE SAME TIME?

Put another way--anyone who had investments in equities--for retirement or otherwise--has gotten crushed in the past two years.  But if you weren't planning on turning to that money for living expenses, the loss--like the gains that preceded it--was on paper.  Psychologically damaging, but not financially debilitating.  Turning to the housing market--I think it is important once again to stress that the overwhelming majority of people who own houses are making their payments.  Something on the order of four percent aren't.  Again--even if you are "upside down"--you are STILL gaining the primary benefit of homeownership--shelter--as you ponder the paper value of your home.

This recession--unlike the one in the 80's--is remarkable not for how it ACTUALLY impacted the economy, but for how it makes Americans FEEL about the economy.  Confidence in the banking system was devastated.  A foreboding sense of the dread at mounting federal debt is pervasive.  While the recession of the 80's WAS actually worse than this by any rational measure of everyday impact, it did not raise the specter of systemic failure to the extent that this one does.  This recession is only "Great" in its capacity to make us THINK about subjects we previously did not have to consider. 

So my beef with Samuelson is one of degree.  Referring to this as "The Great Recession" does injustice to a clearly more devastating time in our history.  Consistent with our tendency to believe the times in which we live are "unique" and "exceptional", we call our recession "Great" as a way of explaining to future generations why it was that we were forced to save more and live within our means.  After all, doing so for any other reason just wouldn't be heroic enough. 


"The Hammer" said...

I agree pretty much but the early 80's recession was not necessarily a myth but let's just say misidentified. The entire 70's were one recession (followed by anemic growth) after another. The reason the early 80's recession gets so much play is (can you guess?), that's right, it was Reagan's recession. Of course around late 82 we started growing and expanding and making money and radio was playing Van Halen's "Jump" instead of Hendrix's "Hey Joe I just shot the old lady down".
Know your history young man.

"The Hammer" said...

Incidentally, in these very pages I predicted Spain would win the World Cup. Regrettably I was correct.

Goldwater's Ghost said...

This recession is only "Great" in its capacity to make us THINK about subjects we previously did not have to consider.

Yes, like the approaching tsunami.

Anonymous said...

According to

The highest the "double digit unemployment" rate hit during the early 80s was 10.8 in 1982; moreover, rates are computed differently now; thus, low balling the actual # and % of unemployed individuals.

Our government had completely paid down our war debts during the late 70s -- and we were still the largest creditor nation in the world.

We spent ourselves into prosperity during the 80s.... the bills are coming due. Your argument is simplistic and lacks a complete understanding of economic principles and how they interconnect.

To compare today's situation to the early 80s is silly...

The Conservative Wahoo said...

I'm still waiting for the evidence that today's recession is worse, Anon. Provide some or go back to your anonymous hole.

The Conservative Wahoo said...

More for you Anon:

Goldwater's Ghost said...

I don’t think Samuelson has ‘bought into the “Great Recession” hype’ as you say, but rather I think he is making a comment on the impact the recession has had across broad segments of society:

"Another theory -- more powerful, I think -- is that the Great Recession, though jarring to almost everyone, has been most disruptive and disillusioning to those who were previously the most protected.”

I think what Samuelson is saying here is that in previous recessions, there were segments of the economy, of the populace, who were somewhat protected because their professions were “recession proof”. In past downturns, it was fairly easy to predict which segments of the economy would be hardest hit – factory workers, auto workers, laborers, etc. Older, more educated workers were hit as well, but not to the extent they are today due to offshoring and outsourcing. When the economy eventually does begin to pick up steam, I don’t think many of the ‘white collar’ jobs lost to these efficiency strategies are coming back.

I saw an analysis recently presented on the Calculated Risk blog that would seem to back up Samuelson’s assertion. The analysis looked at raw data on the long term unemployed broken down into two age cohorts, and revealed 1) the older you are, the harder it is to find a job regardless of education (not surprising) and 2) generally, the more education an individual has, the higher the average length of unemployment (somewhat surprising, to me at least)

I agree, things could certainly be worse, but I’d rather not find out how much worse…

The Conservative Wahoo said...

Et tu, GG? You (and Anon) seem to equate unemployment and recession. They are two different things. I will say again--there was high unemployment in the early 80's recession--perhaps it was more narrowly focused than the research you suggest shows for today. But what about inflation? It is ZERO today (or just about). EVERYONE'S purchasing power was eroding then--and every single person who wanted to buy a house had to wade through high interest rates (and they were higher on credit cards and other consumer loans). For the overwhelming majority of the people in this country who still have jobs--this recession has less impact.

Goldwater's Ghost said...

No, but employment is one of the several factors economists use to measure the length and severity of recessions, and the factor I believe Sameulson was addressing in the short paragraph you included.

Yes, inflation is low for now, but it isn't necessarily translating into purchasing power for consumers. Consumers are still paying down household balance sheets, and until they are on surer footing, PCE won't budge. And as you know, PCE and CI are two engines that have traditionally driven growth in a recovery.

So maybe we shouldn't be looking at the impact of the recessions per se, but rather each's ensuing recovery. And if you do, you might conclude that this 'recovery' has been anything but.

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