January 10, 2009

Closer Than We'd Like to Think

Although political leaders have not been shy in noting the very grave state of the U.S. economy, much care has been taken to distance the current downturn from the Great Depression of the 1930s. Key to that faint reassurance has been the comparison between unemployment rates then - which were around 25% at their worst - and joblessness today, which has surged past seven percent nationally, as of December figures announced on Friday.

Unfortunately, an article from Reuters points out that, in reality, even this cold comfort is denied us:
"We are in a very, very different place than the U.S. economy was in the 1930s," James Poterba, president of the National Bureau of Economic Research told a recent Reuters Summit.

Or are we? Figures collected for Reuters by John Williams, from the electronic newsletter Shadowstats.com, suggest that, while we are not there yet, the comparison is not as outlandish as it might initially seem.

By his count, if unemployment were still tallied the way it was in the 1930s, today's jobless rate would be closer to 16.5 percent - more than double the stated rate.

"I expect that unemployment in the current downturn, which will be particularly deep and protracted, eventually will rival, if not top, the 25 percent seen in the Great Depression," Williams said.

He and other critics have one particular sticking point with the current way of measuring unemployment: the treatment of discouraged workers.

Under President Lyndon Johnson, the government decided individuals who had stopped looking for work for more than a year were no longer part of the labor force. This dramatically decreased the jobless rate reported by the government.
It may well be that removing "discouraged workers" from the final tally makes sense - that it's the best way to express the state of "true" joblessness. Unfortunately, that wasn't the way it was done back in FDR's day, and from an unemployment perspective, that fact renders meaningless any distance between nominal rates then and now. We are a lot closer to the dire circumstances of the Great Depression than most people had thought, and in any discussion of President Bush's legacy and the merits of his administration, this cannot be forgiven or forgotten.

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