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Recessions and rhetoric.

Regardless of your political sentiments during the last election, one thing was clear. All three presidential candidates were keenly sensitive to the misery being inflicted on the electorate by the recession and agreed that the three most important issues were jobs, jobs, and more jobs. During the campaign, the recession received a blizzard of media attention and became an important pressure point used against incumbents, but was it really any different or more severe than other's Americans have experienced during the last two decades? The preliminary figures suggest that, while it was different, it certainly was no worse (and, in fact, was milder than some others).

To an economist, the single most important criterion for designating recession is the aggregate level of economic activity, the Gross Domestic Product. Absolute declines in the inflation-adjusted GDP are the tea leaves read by the gurus at the National Bureau of Economic Research in order to certify a recession officially. The average person probably applies a more pragmatic yardstick--how the economy's problems are affecting him or her as an individual. Examples of these individual experiences would be workers laid off, new graduates unable to find work, people forced to accept reduced hours on the job, and perhaps even personal bankruptcy. The GDP might measure the temperature of the over-all economy, but it is unemployment and declining personal incomes that reflect the vital signs of human beings under severe economic stress.

According to the Commerce Department, prior to the recent downturn, the U.S. officially experienced recessions in 1969-70, 1975-76, 1980, and 1981-82. When GDP is the criterion, the recent recession appears to have been relatively mild. There only were three quarterly declines in GDP, compared to four in 1974-75 and again in 1981-82. In addition to differences in duration, recessions vary considerably in magnitude. In total, the decline in economic activity from peak to trough in the 1990s was $80,000,000,000, roughly equivalent to that experienced in 1974-75. During the previous two recessions, however, lost output averaged $105,000,000,000 measured in 1987 dollars. Only the recession of 1969-70 was milder at $28,000,000,000. Of course, all changes are relative and, when viewed in that light, the recent recession produced a measly 1.6% loss in GDP--about half the size of the relative losses in 1974-75, 1980, and 1981-82.

Shifting perspective from the aseptic environment of the economist to the ground level where the average family operates reveals that, in the 1990s, Americans saw their real disposable personal income fall by $32,200,000,000, a drop of 0.9%. That pales in comparison to declines of two and three times this amount characteristic of 1980 and 1974-75, respectively. A similar story emerges when job losses are considered. About 2,335,000 American workers saw their jobs eliminated during the 1990s, less than were destroyed in 1981-82, when the labor force was significantly smaller. By the same token, the increase in unemployment of 3,500,000 was dwarfed by the 4,289,000 upsurge of 1974-75 and the 4,182,000 rise experienced in 1981-82. Even when adjusted for the relative size of the present labor force, the recent recession seems tame. Unemployment grew by 54%--a sharp and painful rise to be sure, but nothing like the 78% of 1969-70 or the 103% jump in 1974-75.

Unemployment can increase for two reasons--people lose their jobs and new entrants to the labor force are unable to find work. During the 1990s recession, 66% of all new unemployment resulted from job losses. The campaign rhetoric from challengers led many to think this was an abnormally high figure, one which surely justified a vigorous government jobs program, and the sooner the better. However, when seen in historical context, relative employment losses of this magnitude were not unlike those of 1981-82 and actually were smaller than those of the 1980 recession, when disappearing jobs produced 77% of all new unemployment.

Another dimension of the unemployment problem is represented by the "long-term unemployed." Defined by the Labor Department as people out of work longer than 15 weeks, these Americans are likely to be handicapped by a lack of education, training, and relevant skills, even during good times. A rise in the proportion of the unemployed who are unable to find jobs within 15 weeks indicates deteriorating labor market conditions. During the 1990s, the ranks of the long-term unemployed rose by 172%, or by 2,325,000. A jolt of this magnitude suggests this latest recession was the worst in memory, but long-term unemployment jumped by an average of more than 200% during the recessions of 1969-70 and 1974-75.

Recent evidence clearly indicates recovery finally has shifted into a higher gear. Real GDP rose at an annual rate of 3.4% during the third quarter of 1992 and by 3.8% to close out the year. Presaging perhaps even stronger growth ahead, the composite index of leading economic indicators jumped by 1.9% in December, 1992--the strongest single month's showing in almost a decade.

In the last half of the 1930s, John Maynard Keynes' powerful new economic theory and Franklin Delano Roosevelt's concern for human suffering converged to produce public jobs programs offering employment when the private sector would not. The economic evidence suggests that the most recent recession is neither of the magnitude nor longevity to justify a 1930s-style jobs program. Indeed, Americans might be better served in the long run if the politicians in Washington would let their promised jobs programs fade quietly away.
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Author:Kane, Tim D.
Publication:USA Today (Magazine)
Article Type:Column
Date:May 1, 1993
Words:922
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