Saturday, January 17, 2009

Chicken Little Squawks: The Recession!

Naomi Klein's rantings to the contrary notwithstanding, increased government intervention in the economy typically follows a government-caused "disaster." The most notable example is the New Deal, which followed the Crash of '29 and the Federal Reserve's contraction of the money supply: the result was the Great Depression.

It is in the interest of those who seek to expand the power of the federal government to liken our current recession to a cataclysmic economic event. Yet, is there cause for this paranoid frenzy? In his blog, Steve Chapman of the Chicago Tribune tries to put things in perspective:

From listening to politicians and news coverage, you might conclude we are in the worst recession since the Great Depression--if not in an actual depression. President-elect Obama said recently, "This is a crisis unlike any we have seen in our lifetime."At times, the alarms have been close to hysterical. So it may come as a surprise to find that so far, this recession has not been so bad.

When the government's December job report came out last week, we were told it was the biggest one-year job loss since the end of World War II. But that's a fatuous comparison. In 1945, the nation's population was less than half what it is today. So last year's job loss was less than half as painful as that year's.

Speaking at a faculty forum today at the University of Chicago Booth School of Business, economist John Huizinga offered some figures to put the current downturn in perspective. Right now, the unemployment rate is 7.2 percent. In the 1981-82 recession, it peaked at 10.8 percent. In 1974-75, it hit 8.8 percent. Even if we do nothing in the way of fiscal stimulus, according to the incoming administration's own estimates, unemployment this time will top out at 8.8 percent.

Or, as GMU's Don Bourdreaux summarized:
It ain't great, but it's hardly the once-in-a-lifetime catastrophe that conventional wisdom has already declared it to be. (Of course, it could become such a catastrophe if Uncle Sam continues his frenzied interventions.)