Running right up to the election and even after the inauguration of our new President, many words have been used by politicians and the media to describe the US economy. Some of these words are, “depression, calamity, collapse, meltdown, destruction, end of capitalism”, and so on. Emotions have replaced facts in economic discourse. Politicians and the media have turned a garden variety recession into a full-fledged “panic”.
Because they can’t wait to expand the influence and power of central government by passage of their $819 billion “stimulus package”, Obama and the Democrats have attempted to make the US economy look as bad as possible. As he tried this week to sell his stimulus package to Republicans, none of them bought his call for “bold and swift” action by government to create economic recovery. Both Republicans and Democrats should know that printing money won’t bring about long-run job creation. Recessions have to work themselves out. What goes down always goes back up and this economy is no different.
To get a grip on how bad or good things really are, let’s look at some facts. Does anyone remember the “depression, calamity, collapse, meltdown, and destruction” of the economy in the early 1980’s? In December of 1982 the US unemployment rate was 10.8% vs. 7.2% today. Our unemployment rate may rise to 10%, but we’re not there yet. In 1980 the inflation rate was 13.58 percent, whereas it was 3.85% last year. The double-digit inflation rates of the late 1970’s were “cured” by a tight monetary policy at the Federal Reserve. The cure for this inflation was the double digit unemployment rates of the early 80’s. The 1982 recession was the worst recession since the 1930’s. We lived through two tough years and many good people lost their jobs, but no one talked about calamity. We took the pain of unemployment and recession. By the mid 80’s both the inflation and unemployment rates were below 4 percent. We could take pain back then. Now we’re too soft; we need to nurse at the breast of big government at the slightest hint of discomfort.
The media has also created panic by making things seem worse than they really are. Here’s an example. A recent report from CNN Money.com goes like this:
“The number of Americans filing new unemployment insurance claims jumped last week to a 26-year high, surpassing the number of filings economists had predicted. The Labor Department reported Thursday that initial filings for state jobless benefits surged to 573,000 for the week ended Dec. 6. It was the highest number of jobless claims since Nov. 27, 1982 when initial filings hit 612,000.”
Nothing in the above statement is false, but things aren’t nearly as bad as the statement suggests. The 612,000 new UC claims in 1982 was .55% (not 55%, but just a bit over a half of one percent) of the 1982 labor force of 110 million. The 573,000 new UC claims in December of 2008 were only .37% of the 2008 labor force, which has grown to 155 million. While the absolute numbers of initial jobless claims are nearly equal, as a percentage of the labor force, things were lot worse in 1982.
The US economy will begin its rebound by the end of this year, not because of, but in spite of the “drunken sailor” spending of our Federal Government. However, it is infinitely better when a drunken sailor spends money than when the Federal Government spends money. First of all, the drunken sailor spends his own money, not that of his fellow citizens. Second, unlike the Federal Government, which borrows from the Chinese to finance its drunken binges, drunken sailors actually pay their bartenders in cash!
From the strange world of “Coo-Coo Rod” Blagojevich, “Un-Funny Al” Franken, and “Sleazy Norm” Coleman, have yourselves a good week!