Economy's bad, but we've seen worse since '29

The Baltimore Sun

Trips off the tongue, doesn't it? "The worst recession since the Great Depression."

Special interests seeking bailouts, politicians pushing legislation and even some news organizations assure us it's true.

Except it's not. Not yet. From what we know so far, this recession isn't even close to being as painful as the terrible slump of the early 1980s. Not the deepest. Not the longest. By some gauges, it's not even as bad as several less severe downturns.

The economy is on an alarming course, and it may well break post-Depression records before we're done. Many analysts are forecasting such an outcome. But let's not hasten the day by scaring people into thinking it's already here.

One of the best measures of widespread economic pain is unemployment. Wanting a job and not being able to find one was the hallmark of the Great Depression, when one worker in four was unemployed.

Economists expect Friday's report to show December unemployment of 7 percent nationally. That's not the worst result since the 1930s. It's not even the worst since the 1990s. Five other post-Depression slumps produced higher unemployment, including jobless rates of 10.4 percent in 1983 and 7.8 percent in 1992.

What about the roster of people on payrolls at factories, insurance companies and other employers? That's another critical indicator.

Analysts predict the December employment report will show that the economy has lost 1.7 percent of its jobs since it reached its peak a year ago.

That's serious. But the economy shed almost 3 percent of its jobs - 2.7 million - during the early 1980s. A recession in the 1970s was almost as bad. Even in what was widely described as the "mild" downturn of the early 2000s, employers trimmed jobs by 2 percent.

Nor does the decline so far in products and services produced by U.S. workers look bad by historical standards. Gross domestic product plunged 2.7 percent in the 1980s recession. Through September this year, GDP was down less than two-tenths of a percent. (Data nerds - the widely reported 0.5 percent decline for the third quarter is an annual rate.) Figures for the fourth quarter will certainly show a big plummet, but not enough to break any recent records.

Don't worry, Ma and Pa Joad. Your Depression cred is safe for now.

Most of the gloom wells from Wall Street's collapse, which truly is the worst since the 1930s.

The downfall of Lehman Brothers, Bear Stearns, Fannie Mae, Freddie Mac, AIG and the others is stunning. Last year's credit evaporation threatened even healthy companies. The government's bailout packages - at over $2 trillion and counting - are unprecedented.

The financial funk coincides with miserable conditions in retailing, manufacturing and other businesses. Even successful car companies are suffering. Consumer purchases are falling for the first time since the early 1990s.

We don't need to rehearse the housing industry's woes. They're flat-out, unprecedentedly disastrous. Certain parts of Nevada, Florida and Michigan are in regional depressions.

But so far those problems have not caused the kind of widespread, measurable declines to make this the worst nationwide downturn in more than half a century.

The Dow Jones industrial average has fallen more than a third from a little more than a year ago - a breathtaking decline. But no law says stock disasters cause depressions.

Many expected the 1987 stock market crash to herald a severe slump. It didn't. The Great Depression, economists generally agree, was caused by botched, delayed or nonexistent government policy, not the 1929 stock market disaster.

In the recession of 2008-2009, government is on the job delivering monetary and fiscal medicine. Interest rates are down. The money supply is overflowing. We're about to see a huge jolt of government spending.

To be sure, minimizing the country's problems would be as big a mistake as exaggerating them.

"We are in a very difficult spot. The economy is bad. The situation is getting worse," President-elect Barack Obama said yesterday. "It's clear that we have to act and we have to act now."

That sounds about right. Unemployment usually doesn't peak until a recession is already over, and this one has a long way to go. Don't expect the economy to improve until house prices stabilize. The Federal Reserve expects unemployment to keep rising into 2010, minutes from the Fed's December meeting revealed yesterday.

But forecasting a Category 4 hurricane isn't the same as recording 150 mph winds.

On the whole, I would hesitate to bet against this being the worst downturn since the 1930s. But I'd at least wait until the results were in before declaring a winner.

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