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Why the economy still feels worse than it looks

September 15, 2009 |  5:00 am

Stop with the Great Depression comparisons, already!

So argued economist Allan Meltzer of Carnegie Mellon University in a recent Wall Street Journal op-ed piece that caused a stir in the economics community.

Meltzer’s central point was that comparisons between this recession and the collapse of 1929-32 are "greatly overstated and highly misleading."

Strictly by the numbers -- the unemployment rate, for example -- he’s right: This downturn is nowhere near as bad as the Great Depression.

Meltzer asserts that the Obama administration and the Federal Reserve both overreacted in the aftermath of the credit crisis last fall, and encouraged Depression sentiment, egged on by Keynesian economists who believe that the answer to any economic disturbance is to throw more government (taxpayer) money at it.

Still, judging from what I hear from my own extended family and friends around the country, this recession feels worse than what they remember of the painful slump of 1973-74 and the back-to-back downturns of 1980 and 1981-82.

But why?

Probably because too many woes have converged at once: Sudden and massive job losses over the last year, the wipeout not only of a huge chunk of stock market wealth but also of much or all of many people's home equity, the dwindling number of defined-benefit pension plans (and therefore the lack of a future financial safety net), and, of course, the heavy debt burdens now carried by millions of families.

What's more, the federal debt load, and the nation's dependence on foreign creditors, are potential checks on U.S. economic growth. So, too, is the level of competition we face from abroad (an issue of far less relevance in 1973-74 and 1980-82).

We know that the Great Depression was pervaded by the absence of hope. It's going too far to suggest that Americans lack hope on the scale of what occurred in the early-1930s. Yet with financial and job security threatened or nonexistent for a huge swath of the population, many people are questioning how good the future can be, personally and collectively. That is the echo of the '30s that Meltzer may be missing.

As Morris Dickstein writes in his new book, "Dancing in the Dark: A Cultural History of the Great Depression":

". . . The Depression also challenged key tenets of the American ideology. Longstanding beliefs were called into question, especially the myth of success enshrined in the notion of the American Dream. The thirties was the first period in which the phrase 'the American Dream' was commonly used, just when its premise of limitless opportunity and economic abundance seemed suddenly in doubt.

"The Depression weakened many Americans' most common assumptions: that reverses in the business cycle were brief and temporary, that jobs would always be available to those willing to work, that businessmen were the oracles and seers of society, that the younger generation would always be able to come up in the world and do better than its parents."

I can remember those fears being raised in 1974 and 1982, as well. This time, though, feels worse on many levels.

But maybe memory is faulty -- or the perception of the present in a recession is always seen through too dark a prism.

-- Tom Petruno

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