Monday, February 16, 2009

Economist Blog Confusion

The Economist Blog looks at a few key economic indicators in the early 1980s vs. today, and concludes "things were a lot worse then".

Unfortunately, it's not really the case.

Given that, in a liquidity trap, deflation is the bigger threat, we'd clearly be better off if we had 14% inflation right now than we are w/ zero inflation/deflation. Similarly, if the prime rate and the mortgage rates were really high, we could be certain that lowering them would help the economy, and so we would know that things will not continue to get much worse.

Also, the real mortgage rate appears to be higher now than in 1981...

So, the only thing that really is worse in the above is the jobless rate. I notice that they cherry-picked the inflation rate from earlier in the recession cycle, and the jobless rate is taken from later in the cycle... Since unemployment usually still rises even after economic growth is restored, this is slightly misleading. Had they taken both numbers from 1980, the unemployment would have been less. had they taken both from 1982, the inflation rate would have been lower... Most economists expect the unemployment rate to increase for probably the next 12-18 months at least. It's better to compare how much the unemployment rate has increased since the beginning of each recession... And if we do, the answer is: If February is as bad as Nov.-Jan. as far as job losses go, this recession will have resulted in a bigger increase over the same period of time.

The total unemployment rate is also important, of course. My guess is that we could be at 10%-plus by the end of this year and could give 10.8% a run for its money. It's still too early to say.

No comments:

Post a Comment