My timing is terrible, but then, you can’t help when you’re born.
I got out of college in the early 1980s, when the economy was struggling and jobs were hard to find. Things got better both for myself and the economy, and I spent much of the 1990s and early 2000s recruiting job candidates at a time when unemployment was low and qualified job seekers were hard to find. However, by the time my kids reached their 20s and were getting ready to go out into the job market, things had returned to pretty much the conditions I graduated into – a weak economy and high unemployment.
So, I’ve given a fair amount of thought to whether things today are worse than ever, or whether this is just all part of a cycle. It’s an important question – there’s a certain comfort in realizing you’ve been there before, as opposed to feeling like the economy is in a long-term nosedive.
So, here are six comparisons between today and a generation ago. Things are certainly different today – but not necessarily worse.
- Inflation. This was one of the scourges of the late 1970s and early 1980s. Inflation was 5 percent or greater for nine straight years at one point, peaking at 13.3 percent in 1979. In contrast, inflation hasn’t reached 5 percent since 1990, and has been below 2 percent for three of the last five years. Yes, today’s low inflation is partially a symptom of a weak economy, but the economy was weak in the late 1970s and early 1980s as well, with rising prices just making it all the tougher on consumers.
- Economic growth. How weak was the economy back in the early 1980s? Two out of the first three years of the decade saw negative real economic growth. In contrast, the economy has now grown for three straight years, following the deep recession of 2008/2009. The “double-dip” recession of the early 1980s is exactly what policy makers fear will happen to the current economy. 2013 may be pivotal in determining whether that fear will be realized.
- Unemployment. The unemployment rate has now been above 7 percent for four years, and peaked at 10 percent in October of 2009. That’s a tough job market, but unemployment was even worse in the early 1980s. Unemployment stayed above 7 percent for more than five-and-a-half years, and was above 10 percent for 10 straight months.
- Interest rates. This is one of the most interesting aspects of this discussion, because things are extremely different now than they were in the early 1980s, but whether this is better or worse depends on your perspective. 30-year mortgage rates averaged more than 10 percent in every year from 1979 through 1990, peaking at 16.63 percent in 1981. Today, mortgage rates have fallen for six straight years, and averaged 3.66 percent last year. So interest rates are much better now if you want to buy a house, or otherwise borrow money. But what about savers? Short-term deposit rates averaged more than 10 percent in four of the first five years of the 1980s; now, they are down to 0.19 percent. Perhaps this is a toss-up – high interest rates favor savers, while low interest rates favor borrowers. Still, one thing that troubles me about the current environment is that the economy gained a great deal of momentum in the 1980s and 1990s from falling interest rates, whereas today there is nowhere for interest rates to fall
- Personal savings rates. Personal savings rates were a robust 9.8 percent in 1980, and then above 10 percent in three of the next four years. Savings have fallen off a great deal since then – the personal savings rate hasn’t been above 6 percent since the early 1990s. To the extent that savings help fuel future economic growth, this aspect of the economy was definitely better in the early 1980s than it is now.
- The federal deficit. People were up in arms when the annual deficit first exceeded $100 billion in 1982, and then crossed the $200 billion mark the very next year. As we now know, that was nothing – the deficit has exceeded a trillion dollars in each of the last four years. To put this in a broader economic perspective, the deficit was 4.0 percent of GDP in 1982, and 8.5 percent of GDP in 2012. Like personal savings rates, government budget management has gotten worse over time.
In short, some things look worse now, but some looked worse thirty years ago. The good news is that what happened after the bleak years of the early 1980s was improved growth later in the decade, then after a brief recession, a long stretch of growth in the 1990s.
One of the keys to the turnaround was a breakthrough, bi-partisan deal on tax reform. Perhaps today’s politicians will follow that example and reach a similar game-changing deal to address the deficit.