In another thread, Ron said “this recession is actually less severe than either of the last two in terms of the percentage of people out of work.” I think Ron’s understating the severity of the current situation.
I found this graph on Time’s econ blog. As you can see, we’ve already had greater job loss this recession than we did in either the 2007 or the 2001 recessions; you have to go back to 1981 for a recession that was worse than this one. And this recession hasn’t even reached its nadir yet.
(There’s an even scarier looking graph floating around, but the graph you see above is more accurate because it’s measuring by percentage, rather than absolute numbers that haven’t been adjusted for the growing population.)
For whatever it’s worth, past recessions seem to have had an essentially bell shaped trend with more rapid worsening leading to more rapid improvement. If that holds then this recession, which seems to have taken hold quite rapidly, may end fairly rapidly as well. If we’re anywhere near the bottom. And if my eyeballing of the trend is correct. And if unemployment trends act the same way as in past recessions.
Hm. Mea culpa on saying “the last two”. I was working off of memory, and my memory includes the one in 1974 because that’s when I graduated from college and was looking for a job. That sucked. The one in ’81 was when I graduated from graduate school. I got a job fairly quickly then, actually, although not the one I wanted.
However, it’s still accurate to say that in my lifetime (which does not include the Great Depression) there have been two recessions with greater job losses (as a percentage) than this one. They had declining property values and hikes in energy costs, etc. as well. People ended up upside down on their homes and the whole bit. But nobody expected to get bailed out on bad financial decisions by the taxpayers and we pulled out of them.
As far as where we’re going to go from here, I have to say that my personal consumer confidence isn’t exactly shored up by the concept that deficits are going to multiply by what, 4 fold? After seeing the President’s projected spending I’m more than ever going to hold on to what I have.
i’m glad to see that someone has finally published a graph that shows job percentages, rather than raw numbers. what’s scary about the current ‘recession’ is the angle of the downward dive on the graph. if you assume that the overall profile of this recession will look something like the one in 1981, my guess is that we are nowhere near the bottom.
If it isn’t any worse than the one in 1981, I can manage. I remember that one. I got a small bank loan for tuition and it was at 23%. Of course I didn’t have a family then but I ate and worked and went to school at night and lived through it.
Ron, thanks for admitting the error.
You may still be in error, however, to say that in your lifetime, “there have been two recessions with greater job losses.” The above chart was prepared with data from December. It is two months later now, and it’s entirely possible that this recession has by now had greater job losses than the ’74 recession. We’ll know in a few months, once data from this month is available.
If current trends continue — and I really hope they don’t — then there will have been no recessions in your (or my) lifetime with greater job loss by sometime in June or July.
I feel the opposite way; I’d feel much more confident if the stimulus package (and the associated deficit spending) had been much larger. I think a trillion dollars (not including interest) would have been better. This stimulus package may not be large enough to do more than mitigate the harms of the lousy economic situation we’re in.
Virtually all professional economists — including a great many respected conservative economists, such as Greg Manikow (who was the head economist under Bush) — agree that deficit spending is the correct reaction for our current economic crisis. I think it’s fair to say that they’d have less confidence, not more, if Obama had called for an immediate reduction in the deficit.
Why do you think they’re wrong?
Finally, I must point out that in all recessions since the great Depression, government spending has increased in order to help people out, sometimes through specific spending packages, and sometimes through “automatic stabilizers” like unemployment compensation. This particular recession requires more Keynsian approaches because the other option — cutting interest rates — obviously cannot work.
My point is, are you seriously suggesting that the government should do nothing in response to this crisis? If not, what are you suggesting? Just citing past recessions, as you did here, makes no sense, because the situation now is different in ways that make those solutions impossible.
I would add to Amp’s point that the difference is in how one wants the deficit to occur: Mankiw and his conservative colleagues want massive cuts in taxation without correspondingly massive cuts in spending (which is one way to create a deficit); liberals tend to prefer a relatively small cut in taxation and a big increase in spending*. But we really are all Keynesians now in the sense that we think Hoover got it wrong by cutting spending and increasing taxes at the beginning of the Depression.
* I know the statistic that 40+% of the stimulus is in tax cuts, but a lot of those actually are tax credits for people who don’t pay a federal income tax, and tax incentives for various things (effectively subsidizing this and that) — they’re not the across-the-board stuff that Mankiw et al want.
Personally, I think the ideal stimulus package would have been suspension of the payroll tax plus grants to the states to beef up unemployment benefits and health coverage, but no one asked moi.
Has Mankiw explicitly supported the Republican stimulus-through-tax-cut plan? I had thought that he had criticized the details of Obama’s plan, but has so far avoided saying anything about the Republican alternatives.
I’m not aware of any academically accomplished (i.e., publishes in professional journals, etc) economist who supports the tax-cuts-only plan that Republicans put forward.
My statement was “at this time”. Sure, job losses can go lower. We’ll have to see if they do, how severe it is, and how long the recovery takes.
I haven’t recommended an immediate reduction in the deficit. But ramping it upwards in integral multiples makes me ask where the money is going to come from to pay it back down. I’m not particularly hopeful that it’ll be paid off anytime soon.
As far as what the government should do – I’m fine with the infrastructure projects. It’s the government’s job to repair bridges, fix roads, build water treatment and sewer systems, etc., and employing people in such projects puts money in their pockets that they can then spend on housing, health care, etc. Funding educational programs gives people the training to be productive (depending on what the program is). It’s the social programs and what earmarks there are in it that give me pause, especially when those expanded programs turn into entitlements that won’t go away when the spending bill’s grants die out. Giving states funding to fix their budget problems when what they need to do is either cut services or raise taxes on their own.
Then there’s the money going to the states. During the economic boom the states bought off constituencies by creating new spending programs. As the California State budget says:
That story is repeated in lots of other states. Politicians tried to be everything to everyone by voting up expensive new programs that could only be paid for in an economic boom, and the greedy public let themselves get bought off amid “soak the rich” rhetoric. What amazes me is that people act amazed that they should have been expected to anticipate the economic bust. Look again at that graph. What does it tell you? There’s been an economic downturn 5 times before since 1974 and they’ve lasted anywhere from 10 months to 4 years (if the downturn duration is directly related to job loss increases). Don’t people learn? Why then model your state’s program structures as if it was never going to happen again? And why should I pay for it if your state was foolish enough to ignore history? This kind of thing is nothing new, it’s as old as the 7 years of plenty and the 7 years of famine that Joseph warned Pharoh about (and remember what Joseph did during the 7 years of plenty).
The solution to this is to cut those programs, not to take money from people who had no representation in their creation to keep them going. That’s what’s different about this recession; never before have we had as many people taking as much money from the government as entitlements with no productive return.
RonF,
I haven’t recommended an immediate reduction in the deficit. But ramping it upwards in integral multiples makes me ask where the money is going to come from to pay it back down. I’m not particularly hopeful that it’ll be paid off anytime soon.
I don’t think we’ve paid off Reagan’s defense expenditures or Bush II’s Iraq adventure yet either. I noticed in the discussion of whether the war in Iraq was a good idea, you don’t seem to have factored in the monetary cost to the U.S.
There are very few people in this country who are consistent deficit hawks.
True. At this point it’s pretty much a non-discretionary expenditure as far as I’m concerned. Trying to save money by pulling out of Iraq early would be penny wise and pound foolish.
There’s one other issue that worries me; where’s all this money coming from?
We can’t just print up dollar bills. We have to sell U.S. Treasury securities and someone has to buy them. Who’s going to buy them? What are the terms going to be? What kind of leverage will holding these securities give the holder over U.S. foreign and domestic policy? Is there an infinite market for these securities, or will we actually even be able to sell them?
I didn’t notice your anxiety over this when Bushadminco was borrowing all that money from China. Why the worry now? China already owns us, financially speaking.
In my area, unemployment is near 10%. It’s projected to be 13% by this time next year and this is only the people filing unemployment. Turn around? Current projection for the region, 2013.
But my area’s built almost its entire economy that’s left (especially after the downsizing and closing of military bases of the 1990s and the not-so-succesful commercialization of the air bases) on the construction of new housing so it’s not surprising that it was the first region to go down and might be the last to come back out of it.
Right now it’s the easiest time in history to sell US government bonds — everyone in the world with money is looking for someplace that seems secure to put it. Interest rates are extremely low, so the terms are good. There’s no doubt that we’ll be able to secure them.
I don’t think there’s any serious argument that because China owns t-bills, China will get to dictate policy to us. However, this does limit future policies; in the long run, we could see higher interest rates and a lower-valued US dollar because of deficit spending.
I’d recommend that anyone wanting to know more about this read this post on the Economist’s Voice.
(Edited to add: And for more on who is buying the bonds, read this post Apparently, it’s much less China and other country’s central banks, and more private investors, compared to last year.)
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By the way, I don’t see ANYONE denying that ideally, we wouldn’t want to do huge deficit spending. But we don’t live in an ideal world. If the alternative is doing nothing about the economy — or more of the failed “tax cuts cure all ills” economics of the last eight years — then deficit spending is what we should be doing.
I don’t recall the subject coming up here, Jake. But had it, you’d have seen me object. But the spending bill projects to multiply the deficit fourfold, IIRC, and will keep the yearly deficits at that level for at least 2 or 3 more years. That’s an awful lot of debt when you add it all up.
Correction: The unemployment rate will be 13% by September.
Definitely true.
As far as ending the war in Iraq, I think logistically that’s going to be difficult. I wish they would bring back the military tomorrow but that’s partly for selfish reasons.
RonF,
A large chunk of the nominal increase is merely removing the budget games that the Bush admin played. The nominal deficit levels for Bush’s budgets never included the Iraq occupation, the war was always paid for with off-budget emergency spending bills. The increase in US Federal debt has been greater than $500 billion per year since 2002, but the “budget deficit” was only $162 billion in 2007. In 2008, US Federal debt increased by more than $1 trillion, but the “budget deficit” was less than half that. The $1.75 trillion increase in debt for 2009 will be less than double the 2008 increase in debt, not more than 4 times the increase.
Thanks for the graph. For some more data, here’s a table of state unemployment rates from the Burea of of Labor Statistics:
http://www.bls.gov/web/lauhsthl.htm
As of Dec. 2008, Rhode Island had set a record high for its statewide unemployment rate (according to the data in the chart, not sure how far back it goes in time). All the other states still have a ways to go yet. Just FYI.