Economics

The Worst Economy Since… the 1980s?

1980s

A Google News search shows that the phrase “since the 1930s” has been used 7,454 times in the last month, and the phrase “since the Great Depression” has been used almost 6,000 times in the last month, and most of these news references are comparisons of today’s economic and financial conditions to the 1930s and the Great Depression. In contrast, the phrase “since the 1980s” has been used only 758 times in the last month.

By comparing today’s economic conditions to the 1930s and the Great Depression, the news media have apparently skipped the terrible economic conditions of the early 1980s and gone all the way back 75 years to the 1930s, without a comparison to a more recent period like the early 1980s. Compare for example some of the key economic variables today to the peaks for those variables in the early 1980s (see graph above).

We are not even yet anywhere close to the economic conditions of that period. For example, the prime rate was more than six times higher in 1980 compared to today, core inflation in 1980 was six times higher than today, the unemployment rate in November and December of 1982 was more than a percentage point higher than the August 2009 rate, the 30-year mortgage rate in 1981 was almost four times higher than today’s 5 percent, the car loan rate in 1981 was 2.5 times higher than today, and real gas prices were 32 percent more expensive in 1981 than today. So before we start talking about the “worst economy since the 1930s” couldn’t we first look at the early 1980s as a benchmark of how bad economic conditions can get, using a more recent period?

And consider that as bad as the economic conditions were back in the early 1980s, the U.S. economy started on an economic expansion in November of 1982 that didn’t end until July 1990, 92 months later, and marked the third longest expansion in U.S. history. Given the current environment with historically low interest rates and inflation, today’s economic and financial conditions are much more favorable for economic growth than the conditions of the early 1980s. If the economy of the early 1980s recovered even when handicapped with historically high interest rates and inflation, today’s economy is much better positioned for what Larry Kudlow calls the pending “barnburning economic recovery.”

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