September 15, 2013

This Depressing Economy

Far closer to the dismal 1930s than you might think.

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This column went up at PJ Media and was teased here at BizzyBlog on Friday.

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The government’s August jobs report from its Bureau of Labor Statistics was all too typically lackluster.

164,000 seasonally adjusted payroll jobs were added during the month, per the Establishment Survey of employers, but June and July were revised down by a combined 75,000. The Household Survey used to determine the unemployment rate had even grimmer news, as it showed that 115,000 fewer Americans were working in August than in July. The only reason that the official unemployment rate went down to 7.3 percent is because the civilian workforce shrunk by over 300,000, taking the labor force participation rate down to 63.2 percent, that figure’s lowest level in since 1978.

Looking back further, since President Barack Hussein Obama was first inaugurated in January 2009, seasonally adjusted employment per the Household Survey has increased by just over 2 million, while the number of adults not in the labor force has skyrocketed by almost 10 million.

It may be hard to get used to the idea, but the onslaught of statistics such as these in the areas of employment and output indicate that we’re in an economy which, in certain statistical respects, more resembles what the nation experienced during the 1930s than during the other far more legitimate recoveries seen since World War II.

To be clear, I’m not suggesting that the level of human suffering currently occurring — though it has been virtually ignored and vastly understated by an establishment press which has seemingly excised the terms “homelessness” and “tent cities” from its dictionaries while losing its directions to the low-priced weekly motels where so many downtrodden families now live — is anywhere near what it was during the Great Depression.

That said, the respective scorecards at MeasuringWorth.com and the federal government’s Bureau of Economic Analysis show that the economy under President Franklin Delano Roosevelt took barely longer to recover from the steep 26 percent nosedive in real Gross Domestic Product (GDP) which took place from 1929 to 1933 than the economy under Barack Obama has since the most recent recession’s 4.3 percent real GDP decline officially ended in the second quarter of 2009. It may be that the only thing keeping the Obama “recovery” from looking worse on the GDP front is that quarterly stats didn’t become available until shortly after World War II.

The economy under Roosevelt recovered what had been lost in 1936, three years after the Depression’s trough, and grew at a compound annual rate of almost 11 percent to get there. That pace of growth, accompanied by the decade’s high unemployment, explains the popular saying about that period, namely that “the Great Depression wasn’t so bad, if you had a job.”

Given that FDR didn’t take office until March 4, 1933 — the Constitution’s 20th Amendment established our current January 20 Inauguration Day after that — it’s reasonable to believe that the Depression’s bottom occurred in the third or fourth quarter of that year. This would mean that full recovery, if real GDP had been computed on a quarterly basis, may have been achieved just nine or ten quarters later, though it’s conceivable that it could have been taken as long as 15 quarters.

The economy under Obama didn’t see real GDP return to its pre-recession peak until the second quarter of 2011, the eighth quarter after the recession’s end, and did so with paltry compound annual growth of only 2.3 percent; it was nine quarters before BEA issued multi-year revisions in July. In every other recovery from a downturn since World War II, real GDP returned to it pre-recession peak in one, two, or three quarters.

Now let’s compare FDR and BHO using “Buffett’s Benchmark,” so named because it’s the standard by which Warren Buffett, the Obama-worshipper of Omaha, defines a recession’s end. In his view, that doesn’t occur “until real per capita GDP gets back to where it was before,” i.e., its previous peak.

The 1930s economy got to within 0.3 percent of reaching Buffett’s benchmark in 1937, four years after the bottom, before falling back in 1938 and finally getting over the hurdle in 1939. The latest GDP report for the second quarter of 2013, the sixteenth quarter after the most recent recession’s end, revised an original estimate of 1.7 percent annualized growth up to 2.5 percent, and finally pushed per capita GDP above its fourth quarter 2007 peak. It will stay that way as long as the final second-quarter revision in late September comes in at an annualized 2.0 percent or higher and growth continues in subsequent quarters — neither of which is a certainty.

According to the Wall Street Journal, the 22 quarters it took for the economy to return to its previous GDP per capita peak is “more than twice as long as the 10 quarters it took after the recession of the early 1980s, the next-longest recovery since World War II.”

Finally let’s look at unemployment. Surely the Depression was horribly and exponentially worse than our current very unacceptable predicament.

Not so fast.

Estimates of the unemployment rate during the 1930s vary. A 1973 paper by Robert Coen shows that it was between roughly 14 percent and 22 percent from 1933 to 1940. EyewitnessToHistory.com claims that “in 1933, the unemployment rate hovered close to twenty-five percent … (and) never fell below 14.3% until 1941.” The Concise Encyclopedia of Ecomonics tells us that the lowest unemployment rate seen during the 1930s was 12 percent.

The most directly comparable current unemployment statistic today — with one very big exception — is probably the “U-5″ figure, which includes “Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force,” but excludes those who are working part-time for economic reasons (i.e., they can’t find full-time work). The U-5 figure reached a high of 11.4 percent in October 2009 and has since fallen to 8.7 percent.

But BLS’s current methodology excludes from the workforce anyone who has stopped looking for a job. With labor force participation at a 35-year low, that’s a huge omission when comparing today’s data to other eras when there was little alternative to continuing to look for a job — at least if eating was on your and your family’s agenda.

Most analyses attempting to adjust for a “normal” level of labor force participation are currently adding between three and four percentage points to the “official” U-3 unemployment rate. Those points should arguably be added to the current U-5 rate for true Depression-era comparability. Doing so would take that U-5 rate to between 11.7 percent and 12.7 percent, figures which are about as close to close to the unemployment rates seen during much of the 1930s as they are to the official U-5 rates from when BLS first began tracking them in 1994 until 2008, i.e., until Barack Obama came along.

Thus, the current post-recession economy’s performance as measured in GDP, per capita GDP, and even unemployment, has been far closer to what was seen during the 1930s than anything experienced following any post-World War II downturn. Another couple of years of this kind of continued misery, made even more possible by Obamacare’s impending havoc, may lead even progressive historians to start calling the Obama era the 21st century’s depression.

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