Comparing Recessions III

by on January 23, 2009 at 7:38 am in Economics | Permalink

Here are a few key graphs from Time Magazine's cover story.  Read them carefully.

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

..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. "Never in my adult life have I heard more deep- seated
feelings of concern," says Howard Allen, retired chairman of Southern
California Edison. "Many, many business leaders share this lack of
confidence and recognize that we are in real economic trouble." Says
University of Michigan economist Paul McCracken: "This is more than
just a recession in the conventional sense. What has happened has put
the fear of God into people."

…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. "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

…The deeper tremors emanate from the kind of change that occurs only
once every few decades. America is going through a historic transition
from the heedless borrow-and-spend society of the 1980s to one that
stresses savings and investment.

Did the last line give it away?  The article is describing the recession of 1991, an unusually mild recession that preceeded one of the biggest expansions in American history.

Thanks to Roger Congleton for the link.

1 Superheater January 23, 2009 at 7:44 am

Time is to journalism what professional wrestling is to sports.

2 Andy January 23, 2009 at 8:17 am

If you had posted this a few months earlier:

The slump has galvanized Democratic hopes of regaining the White House this year and has confronted Bush with a tough set of choices.

3 DK January 23, 2009 at 8:36 am

my favorite moment of that recession though is reading Paul Krugman’s book at the time, “The Age of Diminished Expectations”, for my undergrad macro class. the quote above is an apt summary. it’s very amusing now to read Krugman saying that people like Sanjay Gupta should be dismissed from public life for having made mistakes on television.

4 Thomas January 23, 2009 at 10:01 am

It’s worse than you suggest. This was written months after the recession had ended.

5 Laocoon January 23, 2009 at 11:15 am

Thanks for the historical perspective. Just this morning over the newspapers we were reviewing the timetable for the recession of the early 90s. The problem arose in the late 1980s. The legislation that authorized the RTC to clean up the S&L problem was in 1989. The RTC took over most of the thrifts in the first 2-3 years, but sales of assets did not really gain traction until 1992 and later. By the sunset of RTC in 1995, things were looking a lot rosier for the economy in general.

Ergo, including the downturn plus 6 years of the RTC cleanup, that’s a total of 8-10 years. Many people, communities, states, and regions were affected. People lost their jobs and homes. Hurricanes Andrew and Hugo did a lot of damage in there, also.

The point is, these economic cycles, even if they aren’t that bad, take time to get into and even more time to get out of. With this historical perspective, no matter how severe one thinks the current situation is, it will take time and patience to work through the pending issues.

6 techreseller January 23, 2009 at 11:35 am

Nice set up. I certainly thought it was an article written in the past few months. Just another cycle.

7 Rich Berger January 23, 2009 at 12:19 pm

Mark S.-

So you wrote that in 1991 and finally got to post it on a blog?

8 Greg January 23, 2009 at 12:50 pm

Mark S.,

Typical doomer comment, I must say. To the best of my knowledge, US GDP is around $13.8 trillion, and public debt is about $10.6 trillion. Do the math; it doesn’t come out to 340%. In fact, our debt to GDP is lower than it was in the early nineties. I hate the ballooning deficit as much or more than the next person, but please stick to the facts.

Yes, we have some very serious problems to deal with. No, the ability of the US economy to generate innovation and jobs has not gone away for the long term. If I had to guess, I would say that is one of Alex’s points.

Re anonymous, good point. Also remember not to eat any apples! Don’t forget Genesis and Sleeping Beauty. Stay away from the apples!

9 Dave January 23, 2009 at 12:59 pm


Mark S was probably referring to public + private US debt, which has reached historic highs as a percentage of US GDP. See here.

10 razib January 23, 2009 at 2:51 pm

back in 2001 or so there were “follow up” profiles of people who were profiled in 1991 (i think in time). most of them had been downsized and there was all this talk about “we” and not “me” and how people were going to be less materialistic and more spiritual. the 2001 follow up showed that most of the people who were turning away from materialism got caught up in the .com boom & late 90s euphoria.

11 pinus January 23, 2009 at 3:38 pm

I am a bit cautious to make oversimplifying conclusions about the current situation based on that article. Nevertheless, what is probably the best lesson from this is that the original article is dated January 13, 1992. But the NBER cycle database states that the recession ended in March 1991!

In the moment when we stop worrying, the recession will be long over.

12 jeff January 23, 2009 at 7:18 pm

Did the last line give it away?

It didn’t for me, I just figured Time was blaming today’s woes on Reagan.

13 Mitch January 24, 2009 at 6:18 am

At first I got all excited, taking doom-and-gloom in Time as a contrarian indicator. If Time says it, it must be wrong, right? Or at least outdated.

IIRC this story (from Jan. 1992) was published in the general neighborhood of the turning point. But we’ve no such luck this time around. C’mon, Time, help us call the bottom already–publish one of these again!

14 Doug January 25, 2009 at 7:10 pm

I don’t know. I recall 1991 through about 1996 as pretty bad times. I was a kid, and maybe my family’s situation was atypical and my perception skewed, but I don’t take today being like 1991 as a good sign at all.

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I’m a long term optimist. But I am also a realist and and want people to get it through their thick heads that this is not your garden variety recession or financial panic.

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22 abercrombie and fitch December 12, 2010 at 1:53 pm

The stock market went on a record-breaking rampage last month, finished 1991 at an all-time high, and kept setting new highs in the opening sessions of 1992. Inflation is at the lowest level in five years, and home mortgages are available at interest rates not seen since 1974.

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