Some selected excerpts from the Time Magazine Cover Story “Why We’re So Gloomy”:
“I haven’t really been able to sort out exactly why there has been this degree of pessimism.”
~Former President Bush
Well, why are Americans so gloomy, fearful and even panicked about the current economic slump?
In one of history’s most painful paradoxes, U.S. consumers seem suddenly disillusioned with the American Dream of rising prosperity even as capitalism and democracy have consigned the Soviet Union to history’s trash heap. Hard times are forcing some people to turn their back on the American Dream.
“Whining” hardly captures the extent of the gloom Americans feel as the current downturn enters its 14th month. The slump is the longest, if not the deepest, since the Great Depression. Traumatized by layoffs that have cost more than 1.2 million jobs during the slump, U.S. consumers have fallen into their deepest funk in years.
While some economists have described the current slump as a near depression, that phrase overstates the case if it is taken as a comparison with the period 1929-33, when the U.S. economy contracted by nearly a third. The D word becomes more valid, especially with a small d, when it is used to compare the growth rate of the 1930s, which averaged 0.5% a year, with the expected sluggishness of the next decade, which some economists predict will see an average growth rate of 2%.
“I’m worried if my kids can earn a decent living and buy a house,” says Tony Lentini, vice president of public affairs for Mitchell Energy in Houston. “I wonder if this will be the first generation that didn’t do better than their parents. There’s a genuine feeling that the country has gotten way off track, and neither political party has any answers. Americans don’t see any solutions.”
The deeper tremors emanate from the kind of change that occurs only once every few decades. America is going through a historic transition from a heedless borrow-and-spend society to one that stresses savings and investment. When this recession is over, America will not simply go back to business as usual.
The underlying change in the way American consumers and business leaders think about saving and spending will make the recovery one of the slowest in history and the next decade one of lowered expectations. Many economists agree that the U.S. will face at least several years of very modest growth as consumers and companies work off the vast debt they assumed in the last decade.
The conditions that led to today’s transition economy go back several decades. Americans have suffered a long-term stagnation of their earnings. The median income of U.S. families has virtually stood still since 1973, showing an annual gain of just 0.3% a year.
The recent debt binge took place on a colossal scale in every sector of the economy. Runaway federal deficits have more than tripled the national debt. Meanwhile, consumers increased their IOUs from $1.4 trillion to $3.7 trillion last year. And U.S. industry raised its debt from $1.4 trillion to $3.5 trillion over the same period. The reckless borrowing made a reckoning inevitable.
So far, though, no reprieve from layoffs is anywhere in sight. Economists say U.S. companies will shed more than 1 million jobs in fields ranging from banking to aerospace, a pace even faster than last year’s. “It’s become almost like a poker game to see who can cut the most,” says employment analyst Lacey. “There’s a kind of corporate frenzy.”
GM’s plans to close 25 plants and cut 74,000 jobs, or 19% of its work force, scarcely addresses such problems as why it takes the company up to a year longer than the Japanese to redesign its cars.
This was from the January 13, 1992 edition of Time Magazine, and the opening quote was from President George H.W. Bush, and the article was about the relatively mild 1990-1991 recession. Note: The text above was altered slightly so that the specific time period was not obvious. Notice the distinct similarities to the reporting about today’s economy.
The July 1990 to March 1991 recession was one of the shortest in U.S. history (8 months according to the NBER) and relatively mild: the jobless rate averaged only 6.1% during the recession and reached a high of only 6.8% by the end of the recession (although it continued to rise after the recession ended, see chart above). I think there is a general consensus that the 1990-1991 was nowhere near as severe as the three previous recessions of the 1970s and 1980s, and it’s a fact that the 1973-1975 and 1981-1982 recessions were twice as long (16 months) as the 1990-1991 recession. And yet, to continue making the point, here is what the media were reporting about the 1990-1991 recession:
“In 1991 the average American expressed more pessimism about the future than at any time since the Great Depression.”
“There is no question but this is the worst economic time since the Great Depression.”
“Sluggish economic growth this year will cap the worst three-year period centered on a recession since the Great Depression.”
“Forecasts for a weak recovery in 1992 suggest the period since 1990 will be the worst for the economy since the Great Depression.”
“…..the worst plunge since the Great Depression.”
“The banking industry has plunged to its lowest point since the Great Depression.”
“This is the most severe economic dislocation we’ve had since the 1930s. Few are immune.”
“Mr. Barry, a past president of the Chamber of Commerce, said 50 For Sale signs are just the tip of the iceberg, since many bank foreclosures and repossessions do not carry signs. “It’s not a recession, it’s a depression,” he said.”
“….with the US economy locked in a recession and more people out of work since the Great Depression.”
“….the worst (retail) sales period on record since the Great Depression.”
“This recession is hitting white-collar workers more heavily than any since the Great Depression of the 1930s.”
Again, sound familiar? Links available here.
HT: Alex Tabarrok at Marginal Revolution and Mark Perry at Ca