26.1.09

THE NEAR-DEPRESSION. Voluntary Xchange recommends David Leonhardt's Economic Scene column.

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.

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.

What the column doesn't tell you is that the car companies pled poverty, promised to change their ways, and returned to business as usual at the first opportunity. It also doesn't tell you that home mortgages were available on terms constrained only by state usury laws, and that a great deal of self-finance (in the form of land-contract sales) went on to make the home sales that did happen happen.

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. ...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.

Mr Leonhardt suggests it could still get that bad. I'll keep following the news.

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