On Monday, President Obama gave his first prime time press conference. In the spirit of bipartisanship, the President told us how dire our economic situation is and how important it was that his nearly one trillion dollar stimulus bill be passed. Every day we wait is costing us thousands of jobs. In order to make his point he said things like, “We are going through the worst economic crisis since the Great Depression.” (I have chosen to quote him from the transcript rather than post video since I’m going to use only a few segments. You can see the video on You Tube or just about anywhere.) This is provably false and is scaring the markets. I’m not saying that we aren’t in a bad economy, but let’s have some prespective.
A good place to start is my very first blog (I didn’t know it was called a blog when I wrote it). It’s called “Reaganomics Didn’t Work?” It details the dramatic state of affairs our economy was in when Reagan took office and compares what happened during the Reagn-Bush years and the so-called “boom” of the Clinton years. No question as far as I’m concerned that the worst economy since the Great Depression is still the economy Jimmy Carter left us with. But in case you’re not convinced, let’s throw some more numbers at you and you make the decision.
During the Great Depression, we had staggering DE-flation. The economy was deflating at an almost 10% rate. We have never seen this condition since the early thirties. In contrast, right now the economy is inflating at an annual rate of 3.8%. This is the highest its been since it was 4.2% in 1991, the last time we had a serious recession. Since the 3.8% is an annual rate, I’m sure the high gas prices during the summer of 2008 had some effect on that number and of course, those prices have come down dramatically. Nevertheless, this is clearly not the worst since the Great Depression. Instead, let’s look at the Jimmy Carter years.
Jimmy Carter was elected in 1976 with an annual rate of 5.8%. (Geez, even THAT’S worse than where we are right now!) By the time he left office in 1981, we had three straight years of double-digit inflation! 11.3 in 1979, 13.5 in 1980, 10.3 in 1981! But our President thinks THIS is the worst economy since the Great Depression. Still not convinced?
Let’s look at unemployment. Unemployment is getting worse. No question. We don’t know right now how high it will eventually go. But the President thinks it is already the worst. . .ok you get it. So how bad is it? Right now, the unemployment rate for January of 2009 is 7.6% . That is the worst it’s been since 1992, again a result of the last serious recession we had. Unfortunately, there are no official statistics for unemployment during the period of the Great Depression from the Bureau of Labor Statistics. We didn’t start keeping track until 1948. I have found some sources that say unemployment was at a peak in 1932 at 24.9%! Wow! Since then, there is only one period of time when we have had double-digit unemployment. Wanna guess? C’mon, you know. Yes, the late 70’s/early 80’s. In 1976, Jimmy Carter was elected with unemployment at 7.8% and declining. It only took a couple of years for President Carter to fix that though. In 1979, it bottomed out at 5.9%. Then started to rise to a high of 10.8% for two months at the end of 1982. Although Mr. Carter had already left office, clearly his fingerprints were on the economy, as I pointed out in my previous paper. This is clearly worse than it is now.
But let’s look at my favorite statistic: GDP. During the GD, obviously we were contracting at an alarming rate: -8.6% in 1930, -6.4% in 1931, and -13% in 1932. Let’s fast forward to today. In the last quarter of 2008, we dropped by -3.8%, the second consecutive quarter of contraction (-.5 in q3) which makes it official, it’s a recession. But for the year, the annual rate of GDP was up, 1.3%. Not quite the numbers we heard in the GD, not to mention that it was positive, not negative. So let’s go back to the Carter years. Economic growth was pretty good during the early part of the Carter administration. In fact, in the second quarter of 1978, it was an astounding 16.7%! Apparently, Mr. Carter had a hard time helping to sustain that growth. It started to decline until just two years later, the second quarter of 1980, growth had contracted to -7.8%. This is the largest contraction since the GD, with the exception of the first quarter of 1958!
To be fair, President Obama didn’t say this is the worst economy since the GD but that this is the worst “economic crisis.” Well, ok, even if you count the credit crunch we are going through, I still don’t think this is close. John McCain was lambasted for saying that the fundamentals of our economy are strong, but he was right. Unemployment, growth, inflation are all at manageable levels. Perhaps there is another reason why the President is being so hyperbolic in his comparison. One need only look at the shopping spree he is calling his economic stimulus bill and you may find the answer.
So his bill will probably pass and we will be left to judge whether it worked or not. How are we supposed to judge him? He says his bill will, “save or create up to 4 million jobs.” On the face, that sounds like a good benchmark. But look at what he is saying – “save or create up to 4 million jobs.” So as long as we don’t lose 4 million jobs, it is a success?!? Wow, that is a pretty low bar. I would wager that if we do nothing we won’t lose 4 million jobs.
Oh yeah, I almost forgot. So if the worst economy since the GD was in the late 70’s/early 80’s, how did we extricate ourselves from that? Is it possible that we could glean some knowledge from that experience? Well if you’ve read my Reaganomics paper, you already know. Tax cuts, tax cuts, tax cuts! What does Mr. Obama think about cutting taxes in the face of what he calls “the most profound economic emergency since the Great Depression,” (yeah, he said it again, just different). Fortunately, he told us on Monday: “We have tried that strategy time and time again, and it’s only helped lead us to the crisis we face right now.” Ouch! It’s going to be a bumpy year.