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Roger’s Rules

How bad is it?

November 23rd, 2008 - 4:29 pm

The economy, I mean. The President-elect warns that “the worst is yet to come” and “millions of jobs” might be lost. Olivier Blanchard, head of the International Monetary Funds, agrees: “The worst is yet to come,” he told a German newspaper recently. Type “economy bad news” into your search engine: you’ll find plenty more where that came from. Jim Cramer, the excitable, “progressive” financial analyst, set the tone some months ago with his “this-is-Armageddon” video.

Maybe so.

Or maybe the current turmoil is, well, the current turmoil.

Let’s get a bit of perspective on things. Yes, yes: my 401K is a 201K now, too. As I write, the market is hovering around 8000, down from a high of more than 14,000 not so many months ago. In October, unemployment jumped from 6.1 to 6.5 percent–ouch! Inflation this year is about 3.7 percent, up from 2.7 percent last year (and 1.6 percent just a few years ago). Not good, what? How does it compare with, say, the golden age of Ronald Reagan. Well, by the end of 1982, unemployment was 10.8 percent, up from 8.6 percent the year before. The Dow was 700–that’s seven hundred . Inflation peaked in 1980 at 14.76 percent, dropping over the course of 1982 from 8.39 to 3.83. Thinking of buying a house? The prime interest rate in 1980 touched 21.5 percent. In 1982, it went from a high of 17 to a low of 11.5 percent. It is about 4 now.

What, Sherlock, do you make of all these numbers? Here are two things: One, the market, and all associated economic indices, fluctuate. Two, we are a lot richer now than we were in in 1980.

Should we expect more volatility in the market and in the economy in general? Absolutely. Is it, as Jim Cramer said, “Armageddon”? Absolutely not. I’m not saying that things are wonderful. They aren’t. But I despise all the media’s trash talking the economy: it’s just prurient sensationalism. There’s plenty of blame to go around here. Personally, I’d start with people like Barney Frank and Christopher Dodd. But I also think that one should keep a sense of perspective on the current mess–perspective, and also humor. I’ve linked to this splendid skit by “the two Johns,” Messrs, Bird and Fortune, before. It dates from several months ago, before the really huge blood-letting of the last 6 weeks, but it still helps explain what happened. The dynamic English comedy duo reprised their act recently to compass some late-breaking developments: you can see it here. The whole thing is sharp, amusing, percipient. But I think my favorite exchange was this:

Interviewer: So the situation is if you make profits you keep them, if you make losses we pay for them.

Investment Banker: That sounds good to me, yes.

It sounds good to Detroit, too, I gather. Are we really going to present the taxpayers with a multi-billion-dollar bill to reward these poster children for financial mismanagement? I feel a Cramer moment coming on. When, Oh when, will the folly of Detroit be recognized? Consider:

* They build cars that consumers do not want
* Labor costs for an American-built car from the (formerly) Big Three are twice as much as for an American-built Toyota or Honda (around $70 per hour as compared with $35 per hour).
* Detroit entered into unsustainable pension and health-care obligations that add something on the order of $2000 to the cost of every car.

How can Detroit possibly compete? Chapter 11 was custom-made for a situation like this. Why should taxpayers foot the bill for such inflated labor and benefit costs? They shouldn’t. It looks like the Bush administration is likely to show some backbone on this issue. I hope Obama will as well.

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