"The 'Great' Recession - Was it?"

Sydney M. Williams

Thought of the Day

“The ‘Great’ Recession – Was It?”

March 26, 2010

How many times have I heard it expressed: “This is the worst recession since the Great Depression!” Today we get the fourth quarter final revision to GDP numbers. The first revision was revised up to 5.9%. (The final number was 5.6%.)

There are many ways to measure the severity of a recession, but two of the most common ways are the level of unemployment and months of declining GDP. By those two measurements the current period does not look as bad as the dismal nine years between November 1973 and November 1982 when almost a third of those ten years were spent in recession – thirty eight of the one hundred and twenty months. Unemployment peaked at 10.8% in December 1982, and remained above 10% for ten months – September 1982-May 1983. In contrast, the current (or past) recession extended 18 months, and unemployment peaked at 10.2% in October 2009.

Why the insistence in making the current period to be worse than the 1970s? The answer, in my opinion, is simple. In talking up (or down) the severity of the current period, the Administration lays the foundation for making fundamental changes in our economy – more power to the State and less to the people. It goes right back to Rahm Emanuel’s comment, “A crisis is a terrible thing to waste.”

There is little doubt in my mind that September-October 2008 held the potential – very real and very scary – to render the credit crisis into a global depression that would have made the 1970s look like a picnic. But it didn’t happen. We can debate the reasons. We can credit some people and discredit others, but the important thing is that it did not happen. In fact, by the time President Obama took the oath of office, the TED spread had improved by over 350 basis points, indicating the worst of the credit crisis was behind us. The stock market was still in decline, but the corporate bond market had been rallying for two months.

I would also say that is too early to smugly agree that credit and financial markets are back to normal. They are not. Small business still has difficulty getting credit and unemployment remains too high. Sovereign deficits in Dubai, Greece, Portugal and others are far too high and corrective measures have yet to be taken. Solutions to the deficits at prodigal states such as California, New York and New Jersey promise to be painful when implemented. The economy could well roll over and match or exceed the experience of those ten years between the end of 1973 and the end of 1982. But, at this point, the current recession has not matched that of 37 years ago. To claim that it is, is hyperbolic, misleading, self-serving and damaging to confidence.

As a debater in high school, I always preferred the “con” side of whatever the resolved topic might be. Arguing from a negative perspective sounds more intelligent, less emotional and more analytical. However, it is somewhat analogous to carving a roast. Slicing the meat does not require the surgical skills necessary to sew it back up.

In our partisan world, politicians similarly seem to enjoy running against something – a promise, a person or a health care bill. But great politicians, such as FDR and Reagan, always exuded optimism, speaking enthusiastically about the future. As the mid-term elections approach, talk of the “Great” recession by Democrats will be replaced by speaking of the recovery. By the end of the third quarter, GDP should have been advancing for five quarters. Unemployment will be drifting lower. A recovering economy will be the most powerful arrow in the Democrat’s quiver, and should not be underestimated by Republicans.

What should work in favor of Republicans is that the line delineating the two Parties is very well defined. Democrats, with their emphasis on entitlements and a move toward, if not Socialism, centralized power in Washington, are vulnerable to a clearly articulated vision that such centralization emasculates the individual. The health care bill symbolizes the difference. As Phil Gramm points out in today’s Wall Street Journal, the discussion is really one of containing costs. The government can do it by some form of rationing, the Democrats preferred route. Republicans would do it by empowering the individual. There are fundamental differences between the two Parties, so the people have a real choice. But, if Republicans run on the sole issue of repeal, it will be a road to defeat.