Today’s Recession is Already Far Worse than 1982
February 27, 2009 - 12:12pm ET
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Today’s Bureau of Economic Analysis report that real gross domestic product plunged at an annual rate of 6.2 percent in the fourth quarter of 2008 is being compared with the 6.4 percent plunge in the first quarter of 1982, the worst of the severe 1981-’82 Reagan recession.
In many ways these two miserable quarters are bookends of an anything-goes political era of “free” market deregulation and cost-cutting at any price. But it is important to keep these two quarters of sharp economic decline in the context of larger economic forces.
The Dow Jones Industrial average lost 6.0 percent in the first quarter of 1982 but lost 19.1 percent in the fourth quarter of 2008. Home values continued to rise rapidly in the first quarter of 1982 but plunged in the fourth quarter of 2008. As a result, the net worth of households continued its decades-long rise in the first quarter of 1982 but household net worth plunged in the fourth quarter of 2008 for the fifth consecutive quarter. (The Federal Reserve reports on March 12 will show exactly how severe was the fourth quarter of 2008 plunge in household net worth.)
And, of course, these household net worth data are aggregate data—including the households of bailed-out Wall Street geniuses as well as the households of unemployed former Circuit City workers. Because household net worth and incomes have become far more polarized since 1982, the actual effect on most households of recent developments is far more severe than the aggregate data might suggest.
In the first quarter of 1982, households saved 11.6 percent of their total after-tax incomes; in the fourth quarter of 2008, households saved only 3.2 percent.
In the first quarter of 1982, total household debt was 66 percent of total after-tax incomes; in the third quarter of 2008 debt was 136 percent of income — more than twice as much — and this figure was likely unchanged in the fourth quarter. Higher interest rates in the first quarter of 1982 forced households to pay 10.7 percent of their after tax incomes to service their debts; with today’s lower interest rates, servicing household debt still takes over 14 percent of after-tax incomes. And then there all the new fees that no one records.
At the end of the first quarter of 1982, the national unemployment rate was 10.8 percent, whereas it was 7.2 percent at the end of the fourth quarter of 2008. But a look at the actual jobs figures—not just how many people were looking for jobs—tells a very different and far more accurate story.
During the first quarter of 1982, 462,000 (0.5 percent) jobs were lost and 780,000 (0.9 percent) jobs were lost year over year to March 1982. But 1,554,000 (1.1 percent) jobs were lost in the fourth quarter of 2008 and year over year to December 2008, 2,974,000 (2.2 percent) jobs were lost. That is, job losses now are more than twice as severe as they were at the worst of the severe 1981-’82 recession.
By virtually every economic measure that matters, the current deep recession is already the worst since the 1930s. It’s time for those wealthy debt industry geniuses — and their political and media retainers and cheerleaders—that got the world into this mess to acquire at least enough decency to be quiet while others try to figure out how to recover.
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