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Tuesday, January 27, 2009

Liar Liar

From television news to the Wall Street Journal we've heard the comparisons of this economy to The Great Depression. This is a historically tough economy, but the Second Great Depression? Seriously?

I know Nashville fares better than many communities in good times and bad, but I pass a lot of $40,000 vehicles on the way to restaurants with full parking lots. I don't recall a robust restaurant industry from video footage of the Depression. There's a serious disconnect between news reports of "how bad things are" (which is the big story of the last several news cycles leading up to the election) and the number of people without jobs and incomes.

Examples of manipulated or hysterically inaccurate news reporting on this economy would make a great doctoral dissertation. The limits of the blog format and my attention span won't allow for that. Here, however, is just one instance of a "fact" offered as evidence of "how bad things are" drilled down to the truth of the matter.

In December the U.S. economy lost half a million jobs, totalling 2.6 million jobs lost for 2008. From the Obama administration-in-waiting to yesterday's Wall Street Journal, this has been reported as "the biggest job loss since 1945." Sounds scary doesn't it?

Well, what exactly does that mean? To history-ignorant Americans (remember, the Social Studies Composit replaced the study of history in most public schools a generation ago), it sounds like more of "the big story" of "the worst economy since The Great Depression" since its the 1940s and The Great Depression was back there somewhere. It sounds awful! The biggest job loss in 64 years! Well, not so fast...

In 1945 the U.S. was in the last year of World War II. While the war in Europe had ended in May, the Japanese surrender didn't come until September. During the majority of 1945 unemployment was 3.0%, or about 1.5% over full employment. Full employment is historically defined by economists as 4 - 4.5% unemployment; this is due to frictional unemployment, or the natural cycle of people in transitional periods of their life (between jobs, maternity leaves, just graduated and looking for your first job, etc...). So the fall of 1945 was a period of historically low unemployment.

Following the surrender of the Japanese and the end of the war, the hot wartime manufacturing economy cooled, women returned from the factories to their homes, soldiers started coming home but were in transition, and the economy "lost" 2.8 million jobs, almost all of it war-related frictional unemployment. This was approximately 2% of the U.S. population at the time (139.9m).

In 2008 the economy shed 2.6 million jobs on a population base of (est) 306m, or .85%. The cause was a rapidly slowing economy (slowing, not imploding) that is expected to continue into much of 2009.

So what's the informative link between 2008 and 1945? Absolutely stinkin' nothing! The 1945 economy wasn't bad and therefore not comparative to our current recession. The job losses in 1945 were, to a great extent, joyous because the jobs themselves were the product of hardship in support of a world war.

The comparison of 2008 to 1945 is a misleading use of facts and statistics to further the big story. There are more examples, but this is enough to make the point. At 7.2% unemployment, we're about 2% less employed than we were eighteen months ago, yet sales in some sectors are off 30%. This is purely a function of psychology, and that psychosis is largely media fed. Since our current President is a scholar of Roosevelt, he might consider resurrecting an appropriate point from that administration; that we have nothing to fear but fear itself.


Ray Taylor said...

Thanks for this post! The media seems to view its role to be increasing readership by creating panic. Or maybe, it's just that there are not enough history courses in journalism school these days.

While the media yells fire, it's great to have someone like you help us stay calm and and focus on a way out.

Jeff Brown said...

I'm with you 100% on this. The mainstream media perpetuated this mindset last year for one reason and one reason alone; to help get Barack Obama elected. It worked.

Roland Lundy said...

Jim thanks for this blog. I wish millions could see it. Could not agree with you more.

Thanks to Mike for linking it on Facebook