First Compare Today to the Early 1980s

by: Mark Perry November 26, 2008    

Mark J. Perry, Ph.D.

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A Google News search shows that the phrase "since the 1930s" has been used 6,223 times in the last month, and the phrase "since the Great Depression" has been used more than 14,000 times in the last month, and most these news references are comparisons of today's economic and financial conditions to the 1930s and the Great Depression. In contrast, the phrase "since the 1980s" has been used only 1,588 times in the last month.

Here's one problem: By comparing today's economic conditions to the 1930s and the Great Depression, the news media has apparently skipped the terrible economic conditions of the early 1980s and gone all the way back 75 years to the 1930s, without a comparison to a more recent period like the early 1980s. Consider for example the following comparisons of key economic variables today to the peaks for those variable in the early 1980s (and see graph above):

Prime Rate
1981: 20.5%
2008: 4% (Current)

Inflation
1980: 14.8%
2008: 3.7% (October)

Unemployment Rate
1982: 10.8%
2008: 6.5% (October)

30-Year Mortgage Rate
1981: 18.5%
2008: 6.04% (Current)

Real Gas Price (2008 dollars)
1981: $3.45 per gallon
2008: $1.86

Bottom Line: The U.S. economy will certainly continue to experience economic problems and recessionary conditions through the first half of 2009, but a comparison of some of today's key economic variables to the early 1980s suggests that we are not even yet anywhere close to the economic conditions of the early 1980s. For example, the prime rate was 5 times higher in 1980 (20.5%) compared to today (4%), inflation in 1980 was 4 times higher, unemployment was 4.3 percentage points higher, the 30-year mortgage rate was 3 time higher, and real gas prices were almost twice as expensive as today.

So before we start talking about the "worst economy since the 1930s" couldn't we first use the early 1980s as a benchmark of how bad economic conditions can get during a more recent period?

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This article has 5 comments:

  •  
    Nov 26 08:30 AM
    the 'supply side' devotees gave us the recession of 1981-82. consumers stopped buying because they knew that under reagan they would lose their jobs. supply-side theory is irrelevant when demand is lacking. today you will see the same supply-side devotees flacking their favorite mantra, equally irrelevantly.
    > jack
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  •  
    Nov 26 12:46 PM
    Thanks for making these comparisons showing that we are not yet in such dire economic straits as those in the early 1980’s. Unfortunately the operative word is “yet.” It is probably better to wait until we are on the way out of the current economic downturn to make the comparison.

    Jack
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  •  
    Nov 26 02:49 PM
    USDebt:

    1980 (2008 dollars): $2.44 Trillion
    2008: $10.65 Trillion

    Seems like we are dragging around 4x as much government debt as we were in 1980. I couldn't find readily available numbers for private debt levels to compare, but I would guess that they are much higher today than they were in 1980 as well.

    Ditto for budget deficits and trade deficits.

    And how about banking sector reserve balances? Things are much worse now than ever before:

    1980 (2008 dollars): +$52 Billion
    2008: -$330 Billion

    So banks are over 6x further in the red than they were in the black in 1980.

    Things actually are different from 1980 and in areas where the differences matter. Your above comparison is superficial at best.
    Reply | Link to Comment
  •  
    Nov 26 06:25 PM
    I agree. Further, the real inflation numbers for for 2008, calculated by the 1980 method........... shadowstats.com


    On Nov 26 02:49 PM Smarty_Pants wrote:

    > USDebt:
    >
    > 1980 (2008 dollars): $2.44 Trillion
    > 2008: $10.65 Trillion
    >
    > Seems like we are dragging around 4x as much government debt as we
    > were in 1980. I couldn't find readily available numbers for private
    > debt levels to compare, but I would guess that they are much higher
    > today than they were in 1980 as well.
    >
    > Ditto for budget deficits and trade deficits.
    >
    > And how about banking sector reserve balances? Things are much worse
    > now than ever before:
    >
    > 1980 (2008 dollars): +$52 Billion
    > 2008: -$330 Billion
    >
    > So banks are over 6x further in the red than they were in the black
    > in 1980.
    >
    > Things actually are different from 1980 and in areas where the differences
    > matter. Your above comparison is superficial at best.
    Reply | Link to Comment
  •  
    Nov 26 06:25 PM
    I agree. Further, the real inflation numbers for for 2008, calculated by the 1980 method........... shadowstats.com


    On Nov 26 02:49 PM Smarty_Pants wrote:

    > USDebt:
    >
    > 1980 (2008 dollars): $2.44 Trillion
    > 2008: $10.65 Trillion
    >
    > Seems like we are dragging around 4x as much government debt as we
    > were in 1980. I couldn't find readily available numbers for private
    > debt levels to compare, but I would guess that they are much higher
    > today than they were in 1980 as well.
    >
    > Ditto for budget deficits and trade deficits.
    >
    > And how about banking sector reserve balances? Things are much worse
    > now than ever before:
    >
    > 1980 (2008 dollars): +$52 Billion
    > 2008: -$330 Billion
    >
    > So banks are over 6x further in the red than they were in the black
    > in 1980.
    >
    > Things actually are different from 1980 and in areas where the differences
    > matter. Your above comparison is superficial at best.
    Reply | Link to Comment
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