Is It 1982 or 1974?
Much of the commentary on the current economic crisis has compared 2008 to 1982, the depth of the last major recession. But there are some important differences, chief among them that, despite losses in manufacturing in the early 80's, the United States still emerged with significant manufacturing capacity. Whatever happens in 2008, that's not going to be the case: Manufacturing is down to ten percent of the American economy—and still falling.
And that points to another difference: Despite his many failings, Ronald Reagan at least understood that, unless a country makes things, it has no economic independence. That's why he was willing to act pragmatically, despite his own stated commitment to free-trade ideology.
Those who claim his mantle today, however, are not simply ideologues on free trade; they have become convinced that money can breed money—and, moreover, that it's a good thing for it to do so. The only kind of manufacturing they want is the manufacturing of ever-higher stock prices.
But there are other reasons to think that 1982 isn't a proper historical analogy. This just came across the CNN Breaking News wire:
U.S. employers cut 533,000 jobs in November -- the most in 34 years -- as unemployment rate rose to 6.7 percent.
Let's see—2008-34 gives us? That's right: 1974. And despite the brief period of deflation in the last two months, the inflation rate has been hovering between four and five percent this year. High inflation plus high unemployment sounds awfully familiar, even to a mere boy like me. Yes, both are lower than they were in 1974 (or in 1982, for that matter). But the snapshot matters less than the direction, and in 1982, the economy was already beginning to turn the corner.
So, 1974 it is. Unless, of course, it's 1929.
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