Ignore the Tabloids: This is Not a Depression!

Lately, I’ve wished I’d taken at least an introductory class in economics during my college years. After word of the House’s thumbs down on the $700 billion rescue bill yesterday, sensationalist headlines instantaneously appeared across the MSM and the blogosphere shouting, “the worst stock market plunge ever!”

Marketwatch offers a calmer voice this morning: Irwin Kellner writes: “We are nowhere near a depression, so let's stop talking ourselves into one.”

Kellner compares today’s financial situation with the depression of the 1930s:

In the crash of 1929 the Dow Jones industrials ($INDU:Dow Jones Industrial Average
$INDU 10,365.45, -777.68, -7.0%) plunged 40% in two months; this time around it has taken a year to fall 22%.

The jobless rate jumped to 25% by 1933; it is little more than 6% today.

The gross domestic product shrank by 25% during the early 1930s; it is up over 3% during the past year.

Consumer prices fell by about 30% from 1929 to 1933; and the last time I looked they were still rising.

Home prices dropped more than 30% during the Depression vs. about 16% today.

Some 40% of all mortgages were delinquent by 1934 compared with 4% today.

In the 1930s, more than 9,000 banks failed compared with fewer than 20 over the past couple of years.

Remember also it was policy errors, not the stock market crash, that caused the Great Depression:

Instead of increasing the money supply, the Federal Reserve of that era reduced it by one-third.

Instead of lowering taxes, Herbert Hoover raised them.

And to channel whatever demand was left into U.S.-made goods, the government enacted the Smoot-Hawley Tariff Act to keep out foreign products; this only provoked our trading partners to do the same.

Add to this today's automatic stabilizers such as unemployment insurance and Social Security, the FDIC to insure bank deposits and circuit breakers to keep stocks from falling too quickly, and you can see why this is not a depression in any way shape or form.

While I am at it, I would like to take issue with the almost ubiquitous use of the word "bailout" to describe the government's rescue package.
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