Get some perspective

One of the things that annoys me often when reading the news is the constant hyperbole about how bad the economy is or how terrible the financial ‘crisis’ was, or how “we brought the global economy back from the brink“. The brink of what, exactly? The phrases “since the 1930s” or “since the Great Depression” have become two of the most overused phrases of the year, almost as annoying as “perfect storm” was in 2007 or “Barack Obama” was in 2008 (kidding on that last part).

A recent article by Mark Perry of the American Enterprise Institute suggests that while things may not seem rosy right now, several key economic indicators were even worse as recently as the 80s:

The prime rate was more than six times higher in 1980 compared to today, core inflation in 1980 was six times higher than today, the unemployment rate in November and December of 1982 was more than a percentage point higher than the August 2009 rate, the 30-year mortgage rate in 1981 was almost four times higher than today’s 5 percent, the car loan rate in 1981 was 2.5 times higher than today, and real gas prices were 32 percent more expensive in 1981 than today. So before we start talking about the “worst economy since the 1930s” couldn’t we first look at the early 1980s as a benchmark of how bad economic conditions can get, using a more recent period?

My memory of the early 1980s isn’t perfect because I had just turned 4 when Ronald Reagan was first elected, but this does seem to gel with anecdotes from my parents, whose mortgage rate was in the mid-teens when they built our house in Harristown, Illinois in 1984.

To take another example of the media and the public’s lack of perspective, last year during the peak of the financial ‘crisis’ (late September 2008), I was traveling in Europe through Germany, Switzerland and Poland. I went to visit an old friend from college who lives in Warsaw and while there I visited the museum of the Warsaw Uprising. This is not the same as the Warsaw Ghetto Uprising, which involved the suppression of the Jews living in the Warsaw inner city. The Warsaw Uprising was an attempt by the Polish Home Army, starting in August 1944, to rise up against the occupying German forces to take back the city in advance of the approaching Soviet army. The long story made short is that the Polish Home Army failed to oust the Nazis and the Soviets of course later expelled the Nazis on their push through to Berlin. I had never really learned about the Warsaw Uprising before and visiting the museum was quite an informative and moving experience. What struck me the most was that this occurred less than 65 years earlier, well within the lifetime of my grandfather and near the time my stepfather was born. The result of the Warsaw Uprising was that approximately 16,000 Polish patriots were killed, 150,000-200,000 civilians were killed and, by the end of the war, 85% of Warsaw had been destroyed. (According to the website of the Warsaw Uprising Museum: “85% of Warsaw’s left bank buildings were destroyed: 25% in the course of the Warsaw Uprising, 35% as the result of systematic German actions after the Uprising, the rest as a combination of the war in September 1939 and the Warsaw Ghetto Uprising.”)

I live in Colorado Springs and Denver is about an hour to the north. I tried imagining a city like Denver (which today is somewhat close in population and area to Warsaw) being virtually wiped off of the map. What is great today is seeing that Warsaw is a thriving modern city. But not so long ago at the end of the Second World War, Warsaw almost disappeared thanks to the ravages of war and brutal tactics of the Nazis.

OK, so we’re not exactly comparing apples to apples when talking about a major world war and a financial ‘crisis’ (I don’t like that word but don’t know what else to call it) brought about by complex financial instruments and imprudent government-subsidized lending. But I think it’s worth bearing in mind that we (humans that is, not just Americans) have come back from worse crises before and the previous crises really were quite a bit worse, as long as you accept that having your country almost burned completely to the ground is a bad thing.

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