1982 Was Worse? Really? Let's Review

By Lee Russ

Thursday, January 22, 2009 at 08:35 PM

David Leonhardt's column in Tuesday's NY Times posits that the economy stinks right now, but not as bad as it stunk in 1982. To be fair to Leonhardt, the column as a whole is more nuanced than the title, "The Economy Is Bad, but 1982 Was Worse," would have you believe. But Leonhardt still does conclude that "the economy is not yet as bad as it was in the early 1980s" (though he finds it "likely" that we'll reach that low point by the end of 2009, even if the stimulus bill passes).

Leonhardt pins his view that 1982 was worse largely on the fact that "The ranks of unemployed and underemployed, controlling for the size of the population, were much larger in 1982 than today." His summary of the 1982 depths:

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.Nationwide, the unemployment rate rose above 10 percent in 1982, compared with 7.2 percent last month.

To realistically compare 1982 and 2008, he adjusts Labor Department data for both years to try to get a "true" unemployment/underemployment figure, and comes up with this:

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.

He then asks a very important question: Why then, does such a large segment of the population feel like now is worse than 1982? His answer:

First, the economic expansion that just ended wasn’t as good as the 1970s expansions. The ’70s get a bad rap, and deservedly so in many ways. But median family income still rose 2 percent during the decade, after adjusting for inflation. Over the past decade, it has fallen.

Second, people seem to understand that the worst is yet to come — that the economy has not yet worked off its excesses.

I buy both of his explanations, but (a) he left out a few things, and (b) that's awfully short shrift given to the fact that median wage fell during our last "expansion," instead of rising as it did before 1982.

What he left out is awfully damned important. 1982 was, for example, at the early stage of shipping jobs overseas. Even people unemployed in 1982 had a reasonable hope that their jobs might "come back" if economic activity snapped back. If they manufactured appliances or clothing or furniture, there was a real chance that demand for these products would eventually rise, their ex-employers would need more employees, and as experienced workers, they'd be called back to work. How does that work today? If demand for refrigerators rises, who gets to make them? Not Americans. Ditto for other appliances, clothing, furniture, toys, electronics, and on and on.

Other differences from 1982 that Leonhardt doesn't mention:

• The entire finance sector of the United States was not teetering on the brink of destruction as it is now.
• Debt was not at the record levels we saw in 2008: the federal government was nowhere near as indebted as it is today, consumers carried only a fraction of the consumer debt they carry today, and business debt was likely far lower than it is today.
• Temporary employment was just getting its fangs into the nation back in 1982, whereas a substantial chunk of 2008's "employed" work in tenuous temporary jobs.
• Ronald Reagan was just beginning to loose the hounds of unregulated capitalism on us in 1982; today those hounds have been running amok and rampant for more than a generation, changing the very foundations of public perception of economic and social relationships.

Those unmentioned factors are primary reasons that "people seem to understand that the worst is yet to come ." And, boy, is it.

Today saw Microsoft announce a cut of "up to 5,000" jobs (despite a net profit of $4.17 billion for the last three months of 2008). And while US media duly reported that 5,000 figure, they kind of missed or underplayed the other part of the announcement by CEO Steven Ballmer, where he said they would also cut "thousands of external jobs held by independent contractors and vendors." That's in addition to the 5,000 direct Microsoft employees being cut. Total cuts? A boatload.

And, oh yeah, Intel's cutting 5,000 also. United Airlines and Bank of America are cutting 1,000 each. Clear Channel's cutting 1,850. Job cuts were announced by Playboy, Toyota, Williams-Sonoma, Jones Apparel, Ericsson and SONY.

If you want a sick laugh, read yesterday's NY Times piece on how there's job security in the industry that deals with the soon-to-be and recently fired:

As companies across the country eliminate hundreds of thousands of jobs, one field is hiring: the layoff industry. Businesses that specialize in “career transition” can barely keep up with the demand as corporate America cuts staff.

...

“I can’t remember a busier time,” said Elaine Varelas, a managing partner at Keystone Partners, based in Boston. Right Management, another company that specializes in outplacement, reported a 39 percent increase in profit last fall. And William L. Ayers Jr., president of the 28-year-old Ayers Group in New York, said his business had had a 75 percent spike in so-called career transition work last year.

Thank God we can still find good news, eh?

And, yes, the retail bloodbath is still building. Good-bye Circuit City with 30,000+ jobs just a few days ago. And Circuit City has a lot of company on the down escalator.

Many chains are staying in business, but closing some locations. National retail closings of that type announced in the last couple of days include Filene’s Basement, Brown Shoe, and Yankee Candle.

Regional retailers also issued plenty of closing notices. In Wisconsin alone, closings were announced by Reinhart Retail Group, Cub Foods, and Dickens Books Ltd.

Even Cash America, a storefront pawn shop operation with 1,000 locations, reaffirmed its intention to close 40+ locations.

It’s also good to keep in mind that closing stores isn’t the only way that retailers are reacting to the ever more dismal situation. Many retailers who aren’t shrinking are still tightening their belts, reducing the number of new jobs that would otherwise have been added to the economy. For example, Coach, the high end leather goods retailer, announced that it’s cutting back its new store openings in North America from 40 per year to 20 per year, as well as suspending plans for expansion of existing stores.

Just today Bloomberg reported:

The number of Americans filing first- time claims for unemployment benefits matched the highest level in 26 years as firings forced more workers to seek government assistance in a deepening recession. Initial jobless claims increased by 62,000 to 589,000, more than forecast, in the week ended Jan. 17, from a revised 527,000 the prior week, a Labor Department report showed today in Washington.

..

The Commerce Department said separately that builders broke ground on the fewest homes since records began in 1959. Housing starts slumped 16 percent in December to an annual rate of 550,000, lower than economists had forecast. Building permits, an indicator of future projects, also reached an unprecedented low.

So, all in all, Mr. Leonhardt, I reluctantly disagree. We're already past 1982, I believe that devastated wreck we're coming up on so rapidly is called 1932-33. And still Eric and the Cantorettes can't think of anything to chant except "more tax cuts, deeper tax cuts, longer tax cuts, more tax cuts..." It would be just as untaxing to chant something useful, like "no dumb war, no jobs offshore, no Milt Friedman anymore." I could learn to like that tune.

All together now:

no dumb war, no jobs offshore, no Milt Friedman anymore

no dumb war, no jobs offshore, no Milt Friedman anymore

no dumb war, no jobs offshore, no Milt Friedman anymore

no dumb war, no jobs offshore, no Milt Friedman anymore

no dumb war, no jobs offshore, no Milt Friedman anymore

no dumb war, no jobs offshore, no Milt Friedman anymore

no dumb war, no jobs offshore, no Milt Friedman anymore

no dumb war, no jobs offshore, no Milt Friedman anymore

no dumb war, no jobs offshore, no Milt Friedman anymore