No Cause for Optimism

Many Wall Street analysts and (mostly right-wing) commentators (see "5 Reasons Why Today is Not Great Depression II" for one example) say we are not headed for a repeat of what took place 80 years ago because the unemployment rate is "only" 6.7 percent, around a quarter of what it was during the Great Depression.

But what they conveniently forget to mention is that national jobless totals only began to spike following the crash year of 1929 and were actually fairly steady up until that point. Unemployment did not hit the widely cited peak (on an annual basis, at least) until three - four years later.

Below is a graph showing the annual unemployment rate for the last four years overlaid on similar data for the period 1926 - 1935. While the future trend for this series might not follow the same trajectory as before, the fact that it hasn't yet hit double-digits is not necessarily a cause for optimism.

(Otherwise, a pessimist might note the fact that data covering the last four years looks somewhat worse than comparable statistics for the period prior to the Great Crash. Perhaps the upside this time around will be greater?)

 

Comments

[Bob Packer]

The fact that you bought into the lie that the unemployment rate is 6.7% is quite amazing. Even the financial columnist for the conservative NY Post is aware of how Bush's labor department is using a new stat call the Birth / Death model to completely fabricate job creation numbers.

I like your website and read it often. I hope you will look into issues a little more deeply in the future.

BTW Kevin Philips author of "Bad Money" and John Williams over at the Shadow Stats website are saying real unemployment is about 14% and that was months ago before it spiked.

[Brad Surly]

Scary to think that the "upside" could be greater. As you say, the current relatively low unemployment rate is nearly always cited as the distinction that denotes the ultimate difference between now and the Great Depression. I had never seen the run-up years compared as you have done here. Wow! Isn't it funny how we humans tend to think that things just can't be any different or change from current circumstances. It would appear, however, that bad times are just now getting some traction.

[Tony]

I know this is not a politics blog, but does this mean Sarah Palin will be elected in a landslide in 2012? Her support in the conservative base means she will win the nomination, hands down. They are wild about her, and conservatives make up a big majority in the Republican party. They don't care if she doesn't perform well.

In 2012 if unemployment is around 20% then there is no way Obama will win re-election, even if moderates don't like Palin's positions on social issues they will vote for her to reject Obama.

Palin takes power on a platform of right- wing authoritarian populism, and becomes this century's version of (pick your 1930s leader).

Is there anything that can prevent this scenario?

[Russell]

So if unemployement is about 20% in 2012, why in the name of God would you want to prevent Palin from being elected President?

[Tony]

The idea is that unemployment will be 20% in 2012 regardless of what policy the government pursues, as a cyclical matter (I have been reading this blog for a while now and it seems Mr. Panzner things WILL be that bad) So basically issue positions on non-economic issues and personal traits would be the only difference, and I would oppose her on both those grounds. The question is, does Mr. Panzner's prediction automatically result in a Republican victory?

Once again I realize this is not a political blog, but the question is surely important, considering the 1928-1936 political cycle in the last Depression and all the consequences it had for the future of the country (including economic direction).

[Guru at MoneyAssistant.org]

You are right on target. I have estimated that we are at a real unemployment rate of approximately 14% or so, at this point in the cycle, based on the actual number of those receiving benefits, those past receiving benefits, those who have given up looking for jobs and those who are substantially underemployed now (employed but at significant reductions in pay, commissions, profits, or hours.)

See the related articles on http://guruatmoneyassistant.wordpress.com

[Richard]

Mike one thing I haven't heard discussed. When will we see the currency of a developed nation collapse? Possibly an Asian country or one in South America? The drop in oil has brought many exporting countries to the brink of bankruptcy already. There must be a watch list somewhere.

[kenmeer livermaile]

"(I have been reading this blog for a while now and it seems Mr. Panzner things WILL be that bad) So basically issue positions on non-economic issues and personal traits would be the only difference"

Well, I know it sounds crazy, but a truly massive New Dealesque investment in a new energy/material fabrication platform could mitigate the damage extensively. Imaginary things like credit and dollars move out of the way when real things like serious improvements in basic essential necessities are significantly made more abundant in a truly entropically beneficial manner.

Of course, this would have to be a NEW New Deal, with far more socialism involved. And also, the word 'entropy' would have to become a commonly used and accurastely understood term in economics jargon.

The former is quite plausible, the latter... well, I can dream.

[kenmeer livermaile]

I'll also note that FDR won not just reelection, but re-re-reelection.

To take this blog's author to task for quoting Bush admin unemployment figures as if he wasn't aware of the fudge factor in such stats historically prevalent long before Bush, seems silly when coupled with the idea that the American people will buy Sarah (porn star idjut) Palin in 2012 simply because she's currently enjoying her rather dubious time in the limelight, or because a core % of currently dejected and confused and essentially clueless voting bloc took a shine to her appeal to certain emotional/moral voter issues that have, sadly, come to replace what once was called conservatism.

Ludicrous, really.

"Drill baby drill" just won't even begin to cut it in 2012. I do look forward to her brief career as a talk-show hostess/wingnut media shill in the next decade. Should be pricelessly entertaining. (And I use the word priceless with it's full economic context. ;)

As for the spinoff of VPILF flicks, the aging lecher in me drools...

[Michael Panzner]

Thanks to those who highlighted the differences between how unemployment statistics used to be calculated and the way things are done now.
I agree that current statistics vastly understate overall jobless totals (and that some of those who were counted before now have access to social safety nets that effectively remove them from the job market), but that doesn't really change the gist of my argument. If anything, it bolsters the view that the actual rate of unemployment could peak at a much higher level than it did during the Great Depression.
Anyway, it is good to know I have readers keeping me on my toes! As always, I encourage you to pass along news stories, analytical insights, or personal experiences that can be shared with others.

[Michael Panzner]

Richard: I'm not sure if there is a "watchlist" as such, but you might want to check out a recent post at Naked Capitalism, entitled "Past Financial Crises Suggest Pain Far From Over" (http://www.nakedcapitalism.com/2009/01/past-financial-crises-suggest-pain-far.html).

[Bob Packer]

>> The idea is that unemployment will be 20% in 2012 regardless of what policy the government pursues.

That is not correct. It's actually a simple matter to fix an economy. Hitler and FDR both used the same method during the 30's and 40's (i.e. big government make work jobs).

However that is politically incorrect to cons so we have to pretend that big government doesn't work.

Hitler had even more amazing results than FDR. He took a much worse economy and fixed it in 2 years. The war gave FDR the politcal cover to really crank up the make work jobs (building weapons). Before that he was way to timid.

[Bob Packer]

>> but that doesn't really change the gist of my argument. If anything, it bolsters the view that the actual rate of unemployment could peak at a much higher level than it did during the Great Depression.

You are 100% correct.

[roger]

Mr' Panzner doesn't often comment on his readers opinion
...its nice to know that behind all these cold statistics
there is a warm human being.Good luck to ya Michael for 2009!

[the_economist]

Thanks for your hard work Michael! Love your articles. I come here every day.

[ron]

While current gov't stats don't reflect a true employment picture they are what we have and the key element in the post is how unemployment in the 30's had a time delay effect but in today's world we live in a 24hr news cycle and have JIT inventory along with instant internet communications so I do not expect to see such a delay in today's economic slowdown regarding unemployment rather just the opposite.

[RueTheDay]

I have said it before - FAR too many people are looking to the past two recessions (1990-91 and 2001) for guidance. This one will be far worse in terms of both depth and duration. Perhaps not quite as bad as the Great Depression, but at least as bad and possibly worse than 1973-75 and 1980-82.

[out of sight]

your dollars worth toilet paper

[Truesincerity]

Credit Default Swaps will insure that this will be as bad as the Great Depression....count on it.

[burberry polos]

Thanks for your hard work Michael! Love your articles.