Depression Doubt

MaxedOutMamma (an economist somewhere but she seems to only drop tantalizing clues as to where she plies her trade) is concerned:

I was troubled by how many people seemed to feel the economy wasn't in deep trouble.   Profound skepticism and the belief that this is all media/political highjinks seem almost to be the consensus.

I guess you may have to put me in the majority.  I certainly don't doubt that we are headed for a recession.  And it would not surprise me if this is the worst recession that most 20-something Obama voters have experienced, though that is not saying much.  But I am not sure we are even facing the Seventies in this one and we certainly are not facing the 1930s.

Here is the problem that we more casual consumers of economic news must struggle with -- the media has fairly accurately predicted 20 of the last 3 economic downturns.  Everywhere you turn, you see analogies to the Great Depression, a period of time where unemployment topped 25%.  Given the media's track record and the nearly breathless panic about the looming economic disaster, any sane person has to put a divide-by-X filter on economic news.  It is certainly possible that I and other are using too large of an X as a correction factor, but is that my fault, or the fault of the purveyors of information who can't tell any story straight.

By the way, for us Polyannas, here are several interesting posts from Mark Perry


  1. Kevin Delaney:

    Believing that the market mess is a creation of "media/political highjinks" is not exclusive of the mess being real.

    Economic warfare is something wildly known and you will find thousands of scholars diligently studying ways to cause economic collapse ... for disinterested scientific research of course.

    The market is the creation of the mind. As Noam Chomsky and his minions know, the press has substantial control over the mind. We had an almost solid three years of screaching about economic doom. They schreached loud enough and managed to kick the economy into a recession.

    Add to all the unknowns associated with having a change agent in power, and we have a prolonged recession.

    This was a manufactured recession and the people who manufactured it now have a super majority.

    It is absolutely sickening.

  2. Ron Hardin:

    The product of news organizations is not news. It is you. They sell your eyeballs to advertisers.

    Whatever attracts audience is what's in the news.

    Unfortunately, audience is hard to attract. The best they can do is soap opera women, who come every day, news or no news, so long as there is soap opera.

    Most people don't want hard news (think city council meetings), so that's out. It's soap opera women or nothing, and that's the news business model.

    As a result, this minority audience, 40% of women, determines the contents of every national debate; if it doesn't hold their interest, it doesn't turn up in the news.

    Economic crisis is an audience attractor, and so that's what you get.

    A side effect is that you actually get an economic crisis from it.

  3. Jason:

    This was a manufactured recession and the people who manufactured it now have a super majority.

    Well put. It is depressing.

    On the depth of economic problems, while there are a lot of lay offs and cut backs that seem induced by panic, the 'hardships' we see first hand and anecdotes we hear are laughable. Families are choosing between ballet lessons and equestrian training because they can no longer afford both. Might have to cook a meal in the kitchen because they can't justify eating every meal out. Starting to question how we will ever afford our 'right' to four years at Harvard or Yale.

    We've some managed to establish an inalienable right to own a house, free medical care, four years of college and that collection of cell phones, TVs and cars that pass for necessities: even without doing any work that contributes to the economy. There is only a blank stare when you ask why some one that only generates $20,000 worth of value as a part time employee with no skills should consume $50,000 in goods and services produced by people who have suffered through years of medical school, braved life threatening conditions in an oil field or bet their life savings starting a business.

    I have forced myself to live on a tap water and bread taste even in the years that I had a champagne budget. I was the guy at night school when my peers were at the ball game & the bar. My wife and I were sharing a ten year old car when his and her leases were all the rage.

    Now it's time to share the wealth? I think not.

  4. ruralcounsel:

    I'm glad to hear a counterpoint to all the depression talk circulating, if only because we often get caught up in one version of the truth.

    That said, I think there is a plausible weakness in your point about the unemployment rate comparison.

    "Everywhere you turn, you see analogies to the Great Depression, a period of time where unemployment topped 25%."

    We don't really know what our current unemployment numbers are, because of the way that statistic is currently collected. There are multiple ways of measuring unemployment, and many arguably overlook the long-term unemployed.

    It has been suggested that our true unemployment rate is approaching (e.g. 15%), but probably not yet reached, 1930's era numbers. But it's probably a good bit higher than reported.

    Does anyone know how these stats were collected in the 1930's?

    Another common measurement: Nowadays you hear about how many new applications for unemployment benefits were filed ... but back then those didn't even exist.

    Bottom line? I don't think we know how bad it's going to be, because the whole ball of yarn is just starting to unravel. And of course the media is going to try and capitalize on it ... no matter how bad it gets, so long as they don't have to put any responsibility for it on Obama.

    If it drags on long enough, and Obama's federal economic gurus can't pull our chestnuts out of the fire ... then maybe you'll see the MSM start downplaying how bad it is.

  5. rmark:

    IIRC, the stats for the 1930's are from post-great depression era studies. At the time, unemployment wasn't tracked the way it is now.

  6. Maurice:

    I agree with the post and all the comments..but one can rely on the politicians to make a good go out of turning this downturn INTO a major depression via stupid interventions into the economy, far worse than any of the bailouts/TARP business. They haven't even begun to touch this. We still don't have the new government in place yet (though one would be hard-pressed to tell, with Obama having press conferences, making all his appointments ahead of time etc.), and I have all the faith in the world that they will continue to screw things up and make them infinitely worse.

    One only has to look at Schwarzenneger trying to raise taxes and drive away more business from California. And it is not much better in Illinios or New York, all high tax-and-spend states.

    There is much talk of a "new" New Deal...and we have just the morons in the Congress to do it. I actually hope that Obama continues to pull back from his plans to spend us to hell and back, but if he and the legislature try to spend us back into prosperity...we could easily end up going nowhere or down farther.

    That's the scary thing. All this talk of depression brings out the worst in our power-mad politicians. If they can be constrained, we have a chance for things to work themselves out...if not, buy me a cup and some pencils and save me a place on a street corner.

  7. danny:

    This recession has been incredible for me. I got an incredible job because a company decided to fire their morons and hire someone who would work efficiently. I am about to buy a house, because morons decided to bid up house prices unsustainably which caused a crash which caused a recession which gave me a job through which I can now afford a reasonably priced home.

    Moral of the story? Recessions are only bad for morons. They are a mixed bag for others.

  8. bbartlog:

    I suggest looking at the aggregate figures for household debt (versus household income), along with similar debt figure for US government and corporate entities. Or look at some extended time series for housing prices. Then try to make some estimates of the effect if any or all of these things return to more normal historical levels. It's kind of goofy to talk about the Depression when we have so much more wealth, and in any case various government wage supports helped increase unemployment at that time; but just because the people in government doing the screeching are mainly making excuses to loot the treasury, that doesn't mean that we aren't headed for actual trouble.

    As regards Mark Perry's points:
    - housing affordability is highest since 2002. First of all, 2002 is already past the beginning of the current real estate bubble, which began in 1995; so it's not like this means that houses are particularly cheap yet. But more generally, why is this evidence for or against economic disaster? I fully expect houses to become *far* more affordable by 2011, but it won't be because all's well with the US economy.
    - loan delinquency rates at historic lows. Yup, agricultural and business loans looking good. As of today, mortgage delinquences *have* passed the 1991 mark. Consumer loans, also not in bad shape yet - but I believe half a million people became unemployed just this month. I don't see these as leading indicators. In fact one of the things that's worrisome is just how much money banks were able to lose while the real estate market was basically sound. Where will they be when it hits bottom?
    - the real estate bubble is geographically limited. True! But unfortunately, this doesn't seem to have stopped national governments and global corporations from effectively spreading the risk to everyone.

    As for the number he throws out regarding the number of bank failures, I think we would want some analysis based on the total size of the entities involved. The 4000 banks that failed in 1933 were likely individually much smaller than something like AIG or Merrill Lynch.

    In any case, I don't believe that having the media advertise doom and gloom will cause economic problems any more than I think having them do the opposite will fix them. The problems we have are the result of too much borrowing at almost every level of society.

  9. Teri Pittman:

    MOM works for a bank, predicting financial conditions in the future. And she's a damn fine human being too ;)

  10. Mesa Econoguy:

    We’re nowhere near a depression.

    Moreover, the NBER probably overshot the designation by going all the way back to Dec 07. May seems like a more reasonable startpoint, tho Q2 GDP was still positive, so even that’s questionable. Haven’t had time to run the numbers.

    I’ve been very unimpressed by NBER and Marty Feldstein.