Former Senator Phil Gramm (R-TX) got himself in some hot water last month by commenting that the U.S. is in the midst of a ‘mental recession’ rather than an actual, structural economic recession, and referred to us as a ‘nation of whiners’ with regard to our current economic woes. Gramm, who holds a doctorate in economics from the University of Georgia, was the national co-chair of Senator John McCain’s (R-AZ) presidential campaign and was one of McCain’s top economic advisers, but stepped down from those roles about one week after making his comments. Senator Barack Obama’s (D-IL) presidential campaign seized quickly on Gramm’s comments in an effort to paint McCain as being out-of-touch with the economic realities in the U.S. today, and Gramm had become a liability.
President George W. Bush (R), always a fount of political wit, was caught weeks later at a private fundraiser saying that, “Wall Street got drunk—that’s one of the reasons I asked you to turn off the TV cameras—it got drunk and now it’s got a hangover. The question is how long will it sober up and not try to do all these fancy financial instruments.” Again, this was seized upon by the Obama campaign as an example of the Republican Party’s disconnection with reality.
The problem is that Gramm and Bush, while they did not present the facts in a particularly articulate or ‘politically correct’ way, were speaking the truth.
The mind really boggles to listen to people talk about the economy today. Politicians, media pundits, bloggers, and citizens on the street all seem to be going on about how bad things are ‘out there’. Well, I’m the first to concede that we’re not exactly in the midst of a boom time. Many people did indeed overreach and signed mortgages that they were unable to pay, resulting in foreclosures and a handful of bank failures. I don’t dispute these things. But for those of us who manage our budgets carefully and don’t live beyond our means, things really aren’t so bad. In fact, for those of us with good credit and sane financial plans things are looking pretty good—after all, when home prices were sky-high they were out of reach for many Americans (like me), but home ownership is becoming more and more affordable by the day.
The biggest negative impact in the economy right now is not the sub-prime mortgage mess that overconfident banks and home buyers got themselves into on their own accord, but rather the high price of gas. Skyrocketing gas prices actually do put the pinch on some poor families, and it has a ripple effect throughout the economy since gas prices factor into the price of nearly all goods and services. That said, only a small number of Americans live right at the cusp of poverty. I certainly sympathize with the small number of people who have found themselves upon hard times for reasons beyond their control, but a nominal increase in the ranks of the needy is hardly by-itself the mark of a crumbling economy.
The economic reality is not the innuendo of the pundits, nor anecdotal stories of increased poverty or neediness. The economic reality is reflected in the numbers, and the numbers actually look pretty good on-average.
According to the U.S. Bureau of Labor Statistics, the unemployment rate in the United States is currently 5.7 percent, up from 4.7 percent one year ago. However, no long term trends are evident in the data at this point and the unemployment rates have shifted up and down during Bush’s two terms over a relatively narrow window. When Bush took office, the rate was 4.2 percent. It spiked to 6.3 percent in 2003, then dropped again as low as 4.6 percent before creeping back up to its current level (source). For comparison purposes, during the supposed ‘boom times’ of President Bill Clinton’s (D) two terms, the rate began at 7.3 percent in 1993 and trended down over most of his presidency to a low-point of 3.9 percent. All-in-all, the unemployment rates between the Clinton presidency and the Bush presidency were not drastically different, though Clinton’s years were marked by a trend of lowering unemployment while Bush’s have been marked by relative employment stability.
A ‘recession’ is generally defined as two consecutive quarters of negative Gross Domestic Product (GDP) growth, although the National Bureau of Economic Research has a more-vague definition reading “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” According to NBER, but not according to the internationally recognized definition, we did indeed have a recession from March 2001 to November 2001 primarily related to the dot-com bust (following one of the longest growth periods on record). Despite the September 11, 2001, terrorist attacks and major business scandals and bankruptcies (Enron, WorldCom), the U.S. economy emerged largely unscathed and the early-2000s recession is considered by many to be among the shortest recessions in U.S. history. When measured annually, the U.S. economy has grown every year through both the Clinton and Bush presidencies at a relatively steady rate.
Except for drops in 2000, 2001, and 2002, average U.S. household wealth (adjusted for inflation, etc.) has increased every year since 1946—including 2003-2007 (2008 data is not yet available).
The inflation rate is on par with historical averages and, in fact, is quite low compared to most of the recessions and depressions we’ve had over our history as a country.
So if inflation is in a fairly average range, household wealth is increasing, unemployment is low and steady, and our economy has continued to grow year-over-year . . . well . . . how bad are things really going? If this isn’t a ‘mental recession’ what is?
It seems to me that we’re letting the bad decisions of overreaching homebuyers and overconfident banks color our impressions of the whole economy, which is actually only at risk (though certainly not teetering on the brink) from the high price of gas. And it also seems to me that if you’re living comfortably within your means, even the high price of gas isn’t going to break your budget too badly. So let’s get over all this fire-and-brimstone economic talk and focus on the real issues of the day, okay?