Knight Kiplinger, a respected author and founder of the Kiplinger business media empire, suggested in a recent essay that much of the discussion, hand-wringing and analysis about our economic problems lack perspective.
“To hear all the talk about the Great Depression and the New Deal, you’d think that Barack Obama is the first president since Franklin D. Roosevelt to take office in a really challenging economy. He’s not,” Kiplinger noted in the introduction of this essay.
Kiplinger then explains that most presidents of the past 60 years were inaugurated “amid varying degrees of economic stress … a tricky transition from war to peace, high inflation and interest rates or post-bubble recessions, usually accompanied by low confidence among consumers and businesses.”
Possibly the most interesting and valuable point of Kiplinger’s essay is that each generation of Americans believe their problems are worse than those of the past.
“It’s a natural tendency of all peoples, in all times, to believe that their own travails are the worst ever. Without personal recollection or close study of earlier crises, modern folks tend to minimize the severity of past slumps,” Kiplinger noted.
Also, Kiplinger said the president who faced a situation like that President Obama faces was Reagan, not FDR.
“When Reagan took office in 1981, the unemployment rate was 7% and climbing fast — much like today. Consumer prices had soared a stunning 12.5% the year before, and interest rates in the high teens were crippling residential real estate and business investment,” Kiplinger wrote.
Continuing with the lesson in perspective, Kiplinger wrote: “Our new President Obama will likely experience something similar in his struggles with this very difficult economy, which will probably worsen a lot before it bottoms out and growth resumes. Today’s jobless rate of about 7% will likely go to 9% and might approach that double-digit peak of 1982. At Kiplinger, we expect the contraction will bottom out in the middle of this year, but the ensuing growth will probably be pretty weak for another year or so.”
Kiplinger also weighs in on the culprits that resulted in our economic downturn.
It’s “a mess caused by the Fed’s keeping credit too cheap too long — which fueled asset speculation, especially in real estate — and by risky Wall Street innovations in unregulated financial instruments.”
And one last piece of Kiplinger perspective: “All recessions eventually end, after painful adjustments of supply, demand and prices. Since we never let recessions run their course without trying lots of well-intentioned remedies, we never know for sure which remedies were really necessary and which ones might have hurt the patient, prolonging the slump.”