9 Reasons Why This Economy Feels So Bad

The recent slump has been unusually painful, and the feeble recovery has been disappointing. But today's economy seems even worse than it actually is

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Recent U.S. economic troubles are often referred to as the Great Recession, implicitly equating them with conditions during the Great Depression. Yet by many measures the economic deterioration of the past few years is not as serious as in some earlier downturns. The drop in GDP from peak to trough for the 2007–09 recession was indeed severe, 4.7% compared with 3.2% for the 1973–75 recession. Still, it doesn’t begin to compare with the 26% decline of the early 1930s, the 18% of the 1937–38 recession or even the 12% of the often-overlooked 1945 slump. And peak unemployment was higher not only during the Great Depression, but also during the recession of the early 1980s.

Moreover, if you look beyond the national averages, several past recessions have been more destructive in certain specific regions. Rust Belt manufacturing was badly battered in the 1970s — indeed, Detroit and the U.S. auto industry have never fully recovered. And the oil and gas business, especially in Texas, needed a long time to bounce back from the 1980s. All things considered, the recent recession may have been worse than average, but it was hardly unprecedented — and nowhere near comparable to what happened in the 1930s. So why do today’s economic troubles seem even worse than they are? Here are nine reasons:

The recovery has been hugely disappointing. Compared with today’s feeble gains, the rebounds that followed the deep recessions of 1973–75 and the early 1980s were robust. Within 18 months, real GDP growth touched 9% and remained well above average for several years. By contrast, the current recovery has failed to get much beyond 4% and has averaged less than 2.25% over the three years since the official end of the recession.

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Slow growth doesn’t count for much in a recovery. If the economy is on the brink of recession, maintaining any growth at all keeps unemployment from rising much, which is an achievement if it’s only 5%. But once a bad recession has pushed unemployment above 8%, sluggish growth doesn’t help much. Because the population is continually increasing, it takes 200,000 new jobs a month to bring unemployment down again. Creating 75,000 jobs a month — or even 150,000 — isn’t enough.

The U.S. was in worse shape than usual when the slump started. In the 1980s, President Reagan was able to rev up the economy with a mixture of tax cuts and defense spending. But when the recent recession started, taxes were already low and the budget had gone from surplus to a large deficit, so it has been harder to stimulate a recovery.

The troubles were concentrated in finance and housing. Recessions that occur because of a downturn in manufacturing are normally followed by a timely recovery. But when the troubles are concentrated in finance, bankers are hesitant to lend the money needed to get the economy moving again. And a drop in housing prices that makes homeowners feel poorer discourages them from spending even after a recovery has started.

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The economic pain has been greatest where it hurts most. The biggest wealth decline during the recession — more than 40% — was among middle-class households whose net worth depends more on home equity than on stocks. In addition, rising prices for gasoline and food have a larger impact on households with lower incomes.

People got used to living beyond their means. The middle-class standard of living has been eroding for more than a decade. Many Americans maintained their spending by borrowing against credit cards and also against the rising value of their homes — until they couldn’t anymore. Now they are feeling not just the actual decline in the economy but also the loss of the artificial affluence that came from borrowing.

The statistics understate the extent of unemployment. Millions of people have dropped out of the labor force, either because they are so-called discouraged workers or were forced into early retirement or are working at temporary or part-time jobs. If everyone who wants more work were counted, the unemployment rate would be somewhere between 11% and 15%.

The euro crisis doesn’t help. It’s easier to straighten out your own economy if the countries you trade with are booming and have lots of money to spend buying your exports. It’s also helpful if they aren’t threatening to blow up the global banking system.

U.S. policy is gridlocked and uncertain. The Morning in America boosterism of the Reagan era may not have made government policies work any better, but it did help keep up morale. By contrast, today’s division and gridlock make the objective economic problems seem even more threatening than they actually are. And that may not change, given today’s divisive politics, however the November elections turn out.

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The recent recession was worse than normal, and the damage has been concentrated where it hurts most. Diffidence and obstruction have thwarted government action domestically, compounded by the problems in the rest of the world. But it’s important to remember that today’s troubles hardly begin to approach the conditions of the 1930s, and that the permanent damage to vital economic sectors is not comparable to the demise of the Rust Belt in the 1970s. Even if the recovery falters, the low point in the economy probably occurred in 2009. Now the U.S economy is fitfully on its way back to normal. Better late than never.

9 comments
urainna
urainna

Government has no moeny, people on the street have no money, the money are in the hands of the hundreds of individuals now, they send the country into this slump, while their fortune are transferred into Swiss bank....

I worked in several big corporations, they were collapsed because the new generation CEOs came in, blew up the stock price, then dismantle the company, left with tons of millions of dollars, left tens of thousands of the employees out in the street.   This is the trend now!!    

urainna
urainna

Theories, abstract concepts, more confusing road maps...

Financial problem, housing price drop were because of too many complicated, tangled theories!

People don't have money in their hands, period!

Why no body do something about outsourcing?  This time is different because we lost the jobs forever----they moved the jobs overseas!!  Is there one company not doing outsourcing?  Those jobs are ours!   If the government change tax code to tax heavily on outsourcing, our jobs will be back!  We will have money to spend!  That's this simple.

Barry Shook
Barry Shook

I still believe that our economic recovery is on shaky ground, and something substantial might occur that will send us back into recession, or worse.  As ineffective as the President and Congress are, I do believe they'll get their act together to prevent us from going off "the fiscal cliff" in late 2012 and 2013.    Or maybe they won't.  The European debt crisis could (by itself) have a large, negative impact in our country that we just haven't experienced yet.  I guess we'll see whatever we see!

Gary McCray
Gary McCray

How about the big one.

Our total faith in unfettered free market capitalism is completely misplaced and a sure and certain recipe for total disaster.

Business is all about winning at all costs and in the short term.

Buy, Prevert, Destroy or Kill everything that gets in your way.

Governments, people, competitors, anything.

Win now, die later.

The sky actually is falling!

Marissa Trunfio
Marissa Trunfio

This recession has hurt everybody in some significant way, and the pain has lasted years. The Middle Class has been entirely squeezed, and it is going to be much harder to recover when such a significant demographic has lost so much financial security to revitalize.

Shawn
Shawn

Reasons 1-8--media hysteria and pandering

Reason 9--see reasons 1-8

Charles Edward Brown
Charles Edward Brown

Good article. While I don't think there are any quick solutions, there are things that both Government and Business could do to start turning things around. What is needed are some practical solutions to these problems instead of the theories from the Left and the Right.