Some (sort of) good economic news

Everywhere you turn, the news is loaded with sludge: We’re in a recession. Is it a depression? Nobody knows … but it’s bad. We’ve lost 25% to 30% of the value of the stock market. Our home values have declined. Unemployment is up.

A common descriptor is “the worst recession since the Great Depression.” The problem is, that comparison makes many people jump to the conclusion that this is as bad as — or the same as — the Great Depression.

But let’s take a glass-half-full approach. We’re still much wealthier than most people in the world. In 2007, the average world income was $7,000.

Still, only about 19 percent of the world’s population lives in countries with per capita incomes at least this high. Countries with an average income near $7,000 include Mexico, Chile, and Latvia. They rank about 40th in the global income table.

Now vs. Great Depression

Want to compare life now to the Great Depression to get some perspective?

Now:

  • Unemployment stands at 7.6 percent.
  • 13.6 million Americans have lost jobs during the past year. U.S. population is nearly 306 million. Those job losses have hit individuals comprising 4.5 percent of the population (not counting the families that depend on them.)
  • 37 million Americans live below the poverty level. (This is about 12 percent of the population in 2007.)
  • The Dow Jones Industrial Average is at about 7,600, down nearly 40 percent from 12,350 one year ago.
  • 24 banks failed in 2008; 13 more have failed thus far in 2009.
  • All failed banks’ holdings are insured by the FDIC up to $100,000, and with temporary hardship measures, up to $250,000. Consumers experience a lot of hassle, but do not lose their money.

Not fun. But as bad as the Depression? Nuh-uh.

During the Great Depression:

  • The unemployment rate was over 23 percent in 1932 and 1933.
  • 13 million Americans lost their jobs from 1929-1932. The U.S. population in 1932 was nearly 125 million. Individuals who lost jobs comprised 10 percent of the population.
  • In 1929, more than half of Americans live below the minimum subsistence level.
  • Industrial stocks lost 80 percent of their value in 2 years.
  • In 1933 alone, 4,000 commercial banks failed.
  • Bank failures resulted in losses of $1.3 billion to Americans. FDIC insurance was put in place in 1934. (This would be equivalent to about $13 billion today.)

Other numbers to watch out for

Similarly, recent job loss figures were accompanied by dire noises that they were the worst job losses since the end of World War II. But let’s think about it: World War II ended. The men came back from war, and the women went back home (mostly), resulting in a great loss of employment. Munitions and aircraft factories shut down, ending more jobs. And the U.S. population in 1945 was 132 million, or about 43 percent of what it is now. Take a deep breath.

If you want to know more …

A recent article on the Financial Post blog takes a look at why things might not be (or feel) as bad as they’ve been touted:

A wise adviser to President John F. Kennedy, Arthur Okun of Yale, devised the “misery index” to gauge the pain of economic crisis — a measure that simply adds together the unemployment rate and the inflation rate. It hit 22% in June, 1980, during an inflationary recession that preceded the Fed’s disinflationary squeeze of 1981-82. The misery index was nearly as bad in January, 1975, at 19.9%.

Assuming inflation was close to zero this January, the misery index would have been roughly the same as the unemployment rate, or 7.6%. By this standard, we have a very long way to go before the economy feels nearly as miserable as it did in 1975 or 1980.

What’s next?

Could things get worse? Oh, yes, and just today, stocks have fallen based on worries that the situation is declining.

Worry, in a sense, is at the heart of the problem. The credit crisis (here’s a primer) is the problem’s “lungs” — without credit, our economy can’t breathe.

The Cheap family is doing OK, although Mr. Cheap’s job as a teacher doesn’t feel as secure as it did six months ago (school districts around us are cutting staff because of budget shortfalls). I’m a freelancer, so I have several streams of income; losing a large one cut my monthly income by a third last fall, but at least I still have work. Most friends who have been laid off have found new positions, while others are hanging on. And of course, we live in Colorado, where conditions are among the best in the nation.

Meanwhile, however, take a deep breath, do what you can, share what you have, and hope and work for the best.

And feel free to share how things look in your neck of the woods.

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