Friday, January 23, 2009

Time Magazine Cover Story: Why We're So Gloomy

Some selected excerpts from the Time Magazine Cover Story "Why We're So Gloomy":

"I haven't really been able to sort out exactly why there has been this degree of pessimism."

~Former President Bush


Well, why are Americans so gloomy, fearful and even panicked about the current economic slump?

In one of history's most painful paradoxes, U.S. consumers seem suddenly disillusioned with the American Dream of rising prosperity even as capitalism and democracy have consigned the Soviet Union to history's trash heap. Hard times are forcing some people to turn their back on the American Dream.

"Whining" hardly captures the extent of the gloom Americans feel as the current downturn enters its 14th month. The slump is the longest, if not the deepest, since the Great Depression. Traumatized by layoffs that have cost more than 1.2 million jobs during the slump, U.S. consumers have fallen into their deepest funk in years.

While some economists have described the current slump as a near depression, that phrase overstates the case if it is taken as a comparison with the period 1929-33, when the U.S. economy contracted by nearly a third. The D word becomes more valid, especially with a small d, when it is used to compare the growth rate of the 1930s, which averaged 0.5% a year, with the expected sluggishness of the next decade, which some economists predict will see an average growth rate of 2%.

"I'm worried if my kids can earn a decent living and buy a house," says Tony Lentini, vice president of public affairs for Mitchell Energy in Houston. "I wonder if this will be the first generation that didn't do better than their parents. There's a genuine feeling that the country has gotten way off track, and neither political party has any answers. Americans don't see any solutions."

The deeper tremors emanate from the kind of change that occurs only once every few decades. America is going through a historic transition from a heedless borrow-and-spend society to one that stresses savings and investment. When this recession is over, America will not simply go back to business as usual.

The underlying change in the way American consumers and business leaders think about saving and spending will make the recovery one of the slowest in history and the next decade one of lowered expectations. Many economists agree that the U.S. will face at least several years of very modest growth as consumers and companies work off the vast debt they assumed in the last decade.

The conditions that led to today's transition economy go back several decades. Americans have suffered a long-term stagnation of their earnings. The median income of U.S. families has virtually stood still since 1973, showing an annual gain of just 0.3% a year.

The recent debt binge took place on a colossal scale in every sector of the economy. Runaway federal deficits have more than tripled the national debt. Meanwhile, consumers increased their IOUs from $1.4 trillion to $3.7 trillion last year. And U.S. industry raised its debt from $1.4 trillion to $3.5 trillion over the same period. The reckless borrowing made a reckoning inevitable.

So far, though, no reprieve from layoffs is anywhere in sight. Economists say U.S. companies will shed more than 1 million jobs in fields ranging from banking to aerospace, a pace even faster than last year's. "It's become almost like a poker game to see who can cut the most," says employment analyst Lacey. "There's a kind of corporate frenzy."

GM's plans to close 25 plants and cut 74,000 jobs, or 19% of its work force, scarcely addresses such problems as why it takes the company up to a year longer than the Japanese to redesign its cars.

MP: This was from the January 13, 1992 edition of Time Magazine, and the opening quote was from President George H.W. Bush, and the article was about the relatively mild 1990-1991 recession. Note: I altered some of the text above so that the specific time period was not obvious. Notice the distinct similarities to the reporting about today's economy.

HT:
Alex Tabarrok at Marginal Revolution

Update: The 1990-91 recession started in July of 1990 and ended in March of 1991, but the end of the recession wasn't announced by the NBER until December 1992, so the Time Magazine article was actually written ten months after the 1990-1991 recession ended.

18 Comments:

At 1/23/2009 10:01 AM, Anonymous thomasblair said...

I knew it was old when the national debt was reported as having more than tripled to $3.1t.

Other than those debt numbers, there is nothing that gives away that we've been hearing this type of reporting for years now.

 
At 1/23/2009 10:36 AM, Blogger RebelRenegade said...

One reason we're so gloomy now is that Bernanke & Paulson thought it was a wonderful idea to run to Congress, napkin in hand, and scream that we won't have an economy on Monday if we don't pass this bailout bill now.

Just sayin...

 
At 1/23/2009 10:46 AM, Blogger 1 said...

Gloomy? Does Time magazine saying so (again and again ad nauseam) make it so?

Could people be gloomy because Time magazine like most of the rest of the MSM crowd sucks?

When delusion and opinion are offered up instead of FACTS like here, here, and here for instance, is it any reason people might be perceived as, 'gloomy'?

Is this anyway to run a magazine?

What sort of business model is Time magzine reaching for?

How can people make an intelligent choice at the ballot box if Time is any example of what passes for news?

 
At 1/23/2009 10:59 AM, Blogger misterjosh said...

Oh how short our memories are.

"Those who do not study history are doomed to repeat it" ad nauseum evidently.

 
At 1/23/2009 11:01 AM, Anonymous Anonymous said...

> "I wonder if this will be
> the first generation that
> didn't do better than
> their parents."

Well he was right. At the time, he was talking about generation X, and they're getting screwed.

 
At 1/23/2009 12:53 PM, Blogger GOGGA said...

We will need 10 years to recover the markets.

 
At 1/23/2009 4:34 PM, Blogger 1 said...

"Well he was right. At the time, he was talking about generation X, and they're getting screwed"...

Yes indeed, the generation X crowd is doing a bang up job hosing themselves...

 
At 1/23/2009 5:16 PM, Blogger PeakTrader said...

It's been a long time since the U.S. had a severe recession, e.g. 1981-82, and people have forgotten or didn't live through one. Phil Gramm (economist and former senator) was correct when he said: ""We have sort of become a nation of whiners. You just hear this constant whining..." This recession is much less severe than the 1981-82 recession on the production side (e.g. Y = C + I + G + NX). Also, on the consumption side, it doesn't reflect a recession at all, i.e. there are cheap and abundant real assets and goods.

Moreover, I may add, fiscal policy should focus on tax cuts and government spending, and perhaps loans to one or two non-banking industries, e.g. insurance and auto firms, instead of buying hundreds of billions of dollars of equity in banks. The Fed and FDIC should strengthen the banking industry.

 
At 1/23/2009 5:31 PM, Blogger PeakTrader said...

Also, I may add, the U.S. had a spectacular structural bull stock market from 1982-00. There was another structural bull stock market from 1946-65 (ending in '82) and then a severe recession began eight years later (in 1973-74).

I disagree with the NBER. I believe, the current recession began in September 2008, when the credit market began to freeze (after Lehman was allowed to fail), which coincided with the S&P 500 beginning a steep fall from above 1,200.

 
At 1/23/2009 5:57 PM, Anonymous EJ said...

Peak Trader,

I also tend to disagree with the NBER. Not that is really matters, but I always thought leading up to the declaration that it would be declared to have begun in August or September. That's when industrial production, retail sales and employment all began to fall apart. When people talk about this recession, we really need to look at it in two parts. Because from Dec 07 until the late summer 08, we were barely in one. Growth was very slow but output was not shrinking. The stock market had already fallen considerably, but this usually happens prior to recessions. The stock market peaked out in march of 2000, 8 months before the official start. Industrial production, retail sales, personal income, and GDP were all still growing even if at a slower pace. The only indicator showing real recessionary activity was payroll employment (because productivity growth was faster then output growth), but once again this was barely negative and not anywhere close to historic recessionary levels like we have seen the past few months.

 
At 1/23/2009 7:10 PM, Anonymous Anonymous said...

Last year was the best year that my household has had since I was married in the mid-90s. This year promises to be even better. I am very optimistic about my economic situation.

 
At 1/23/2009 8:32 PM, Blogger PeakTrader said...

EJ, yes, it seemed the economy was on a path to a rare soft-landing, although the Fed was initially behind the curve easing the money supply (in Aug & Sep '07), and between Bear Stearns (from Mar to May '08) and GM (in Dec '08), there were a few fiscal policy mistakes, which turned out to be major mistakes.

I thought the original TARP plan was a brilliant idea, i.e. exchanging a strong asset (cash) for a weak asset (e.g. mortgage backed securities). However, perhaps, the Fed should have made the exchange, and then exchanged the securities back for cash, e.g. in five years, when balance sheets became stronger. The FDIC also has a role (article below):

Can the FDIC Handle Its Growing Job?
By Stephen Gandel Monday, Jan. 19, 2009

The FDIC's chief job is to provide insurance on bank deposits. That means when a bank fails, it is up to the FDIC to guarantee that you'll get at least that much of the money you had in your checking account or savings account or certificate of deposit. It does this by seizing a bank when it fails and selling it off whole or in pieces, typically to another bank, for as much as it can get. The difference between what the bank sells for and how much is still owed depositors is the FDIC loss and comes out of its fund, which all banks are required to pay into.

The FDIC says the average loss ratio hides the fact that the agency was able to resolve the largest bank failure of 2008 — Washington Mutual— without costing its insurance fund a dime. "Washington Mutual was an absolute home run," says FBR's Stein (my comment: I believe, the FDIC wasn't involved in many deals that turned out to be disasters, e.g. Bank of America acquiring Merrill Lynch).

 
At 1/23/2009 11:01 PM, Blogger Tor Hershman said...

I believe the correct journalistic nomenclature is.....
Time Sucks!

Gad, look at some of their
Man (Now – Person) Of The Year choices – Hilter, Stalin, Reagan, Ye Gads!

Now here’s a wee YouTube video that REALLY tells why we’re so gloomy.

http://www.youtube.com/watch?v=2LubuSAgB5s

Stay on groovin' safari,
Tor

 
At 1/24/2009 4:35 AM, Blogger bobble said...

what are you people smoking? i want some of it. must be great stuff.

two out of the three largest U.S. banks (C, BAC) are insolvent, only kept alive by close to $100 billion of government aid. it's hard to tell about the other banks since they all have been lying about their balance sheets for the last two years.

the commercial paper market and the bond markets are kept alive by a trillion dollars of intervention by the fed and the treasury.

similar interventions in most of the developed countries in the world.

world trade is collapsing.

Unemployment is spiking up.

George 'government is bad' Bush rushed to beg for $750 billion to stop the economy from failing.

what am i missing here besides some, apparently, really good weed?

 
At 1/24/2009 5:16 AM, Blogger PeakTrader said...

Bobble, you're missing the real economy, where U.S. living standards rose at a steeper rate, and U.S. firms became much more efficient. The U.S. government has been very aggressive attempting to promote growth, because sustainable growth is optimal growth. It's better these huge global imbalances correct slowly rather than suddenly. Also:

Nation's Banks Are Well-Capitalized: FDIC's Bair
Wednesday January 21, 2009

The nation's banking system remains generally sound despite the doom and gloom that has dominated some of its biggest names, FDIC Chairman Sheila Bair said Wednesday.

"It was a tough quarter. We knew it was going to be a tough quarter. Banks have some real challenges," Bair said during a CNBC interview. "But I think it needs to be emphasized and re-emphasized these banks are solvent, they're well-capitalized overwhelmingly, and that really is what creditors and depositors seem to be focusing on right now."

Moreover, Bair rejected predictions in some areas that the bank industry as a whole is facing ruin, though she did acknowledge problems. She said 98 percent of all banks are well-capitalized, representing 99 percent of all assets.

 
At 1/24/2009 7:28 PM, Blogger NoWhining said...

The real reason....bad news sells, good news doesn't. That's why the myriad of other flights which landed safely were not covered on the same day that the landing on the Hudson was such a media hit (plus...that pilot did an awesome job!). If you're looking for good news, best not look for it in any media that relies on ratings or distribution levels (which translates into ad space sold). Unless, of course, it has to do with the Obama presidency. Then it's all sunshine and gum drops.

 
At 1/24/2009 7:29 PM, Blogger NoWhining said...

The real reason....bad news sells, good news doesn't. That's why the myriad of other flights which landed safely were not covered on the same day that the landing on the Hudson was such a media hit (plus...that pilot did an awesome job!). If you're looking for good news, best not look for it in any media that relies on ratings or distribution levels (which translates into ad space sold). Unless, of course, it has to do with the Obama presidency. Then it's all sunshine and gum drops.

 
At 2/14/2009 1:43 PM, Blogger ruff said...

How much of the Bush Recession is caused by the wealthy, knowing full well they were going to loose all of the government to the Democrats, mainly because of the terror of the Bush administration on the American people? Seeing the obvious writing on the wall, these wealthy have simply receded, withdrew, and decreased their investment in the USA, partly in a political play of abuse, to terrorize the American people and to try and enforce their control over Americans, with their main tool, money. The Bush Recession is not going on by magic or some mystery of capitalism. Isn't this a reaction, to a reaction, to an angry reaction of the abuse of power?

 

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