The Carter economy (mis-)remembered

I just listened to public radio’s This American Life do their special program on the housing crisis. The bread and butter for This American Life is the varied angsts of people who aren’t fortunate enough to live on Manhattan’s Upper West Side, so this was an unusual foray into something resembling hard news. I suppose it was to be expected that it would be filled with risible economic misinformation.

At the end, the program made its obligatory comparison to the great economic crises of the 20th century, the Great Depression and the “malaise” of the Carter administration. Comparisons to the Depression are obligatory in any election year with a Republican incumbent and a slow economy, so it’s a telling sign of economic improvement if This American Life admits that comparison doesn’t work. Instead, they compare to the 1970s: “unemployment keeps going up, and things are really bad, unless you’re comparing to the Depression.” (Quote from memory, not verbatim.)

Well, let’s look at a few numbers, comparing today with January 1, 1981. Today’s unemployment rate is 5.0% (actually down, not up, from last month). That’s higher than the recent low of 3.8%, but much lower than 1981′s 7.5%. Today’s prime rate — the best interest rate available in the private sector — is 5%. In 1981 it was a whopping 20.5%. (That was the highest it’s been since 1948, this first year my source reports the data.) Today’s inflation rate is 3.98%. In 1981 it was 11.83%. (That was actually down a bit from its mid-1980 peak of 14.76%, a height unmatched since 1947.) If we do a back-of-the-envelope calculation to adjust for inflation, that means that the real prime rate today is about 1%, compared to about 9% in 1981. (Note: this calculation is probably not exactly right, due to differences in the way the data sets are reported, but it gives a sense of the orders of magnitude.)

In addition to the numbers, there was the untold suffering caused by Nixon’s unrepealed price controls and Carter’s “voluntary” price controls, most famously the gas lines. Gasoline may be expensive today, but you can buy it nearly anywhere without waiting. (You can thank Ronald Reagan for that.) Today’s economy looks nothing like Carter’s, thank heavens.

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