[Marxism] excerpt from blog post: was the 1982 recession worse than today's?

[MICHAEL YATES <mikedjyates@xxxxxxx>]

Here is an excerpt from my lastest blog post:
 
In an interesting article in the Business Section of the New York Times for 
January 21, 2009, David Leonhardt says that "It’s Bad But 1982 Was Worse." He 
uses the labor market statistics just discussed to argue that the downturn of 
1982 was worse than the current recession. 1982 was bad. I lived in Johnstown, 
Pennsylvania then, and I remember that the state’s Department of Labor 
estimated that the unemployment rate in the two-county area surrounding 
Johnstown (Cambria and Somerset counties) hit 26%. The state doesn’t use the 
same method to estimate unemployment that the Bureau of Labor Statistics 
employs, but even if there is a larger margin of error in local unemployment 
rate estimates, 26% unemployment is evidence of economic catastrophe. We don’t 
know how many hidden unemployed there were in the Johnstown area, but there 
must have been quite a few, implying that the expanded rate must have been well 
over 30%. Nationally in 1982, the unemployment rate hit double digits during 
some months. For the entire year, the official unemployment rate was a whopping 
9.7%. We’ll have to see considerably more job loss in 2009 for the yearly rate 
to hit this level. In 1982 the expanded unemployment rate peaked at 16.3%, 
again much higher than today’s 13%. In 1982, like today, home sales plummeted, 
even more than now.
 
I suppose that Leonhardt wrote his column to put our current economic mess into 
perspective, maybe to remind us (many of us weren’t alive in 1982 or too young 
to remember) that yes, things are bad but they have been worse. So don’t 
despair. He does tell us that worse things might well happen and the economy 
might continue to deteriorate, but the overall thrust of the article is 
optimistic.
 
There are serious problems with Leonhardt’s comparison of 1982 and today. Then 
the Federal Reserve was in the process of ridding the economy of inflation, 
which had burgeoned in the late 1970s. Inflation benefits debtors—who are more 
likely to be in the working class—because they get to pay back loans with 
depreciated dollars. It therefore harms creditors, like banks, and these and 
their owners have always been prime concerns of the Fed. Federal Reserve 
chairman Paul Volcker (name sound familiar? He is on Obama’s economic team) 
pushed interest rates into the stratosphere. I had cash in a money market fund 
that was paying more than 15% interest. As the Fed tightened, less money was 
availalble to banks to lend out, and they responded by increasing their rates 
to prospective borrowers. Business firms couldn’t secure short-term loans, and 
this wreaked havoc on some industries, notably the steel companies, which began 
to downsize and shed workers. By the end of the 1980s, Johnstown had lost 
thousands of high-paying mill jobs, as had other steel towns, like Pittsburgh 
and Gary. This was when, as Leonhardt points out, the term "rust belt" became 
part of the language. One of the outcomes of the de-industrialization, helped 
along by the high interest rates, was a gravely weakened labor movement 
(President Reagan helped here too with his historic firing of the striking Air 
Traffic Controllers). The economic bleeding and the consequent arrow to the 
heart of organized labor set the stage for the implementation of the regime of 
deregulation, cuts in social programs, and privatization known as 
neoliberalism. All of this is to say that the recession of 1982 served a 
political purpose—to squeeze workers and help employers gain the upper hand 
vis-a-vis unions, while laying the groundwork for the freedom of movement of 
capital that characterizes the world economy today.
 
rest at blog.cheapmotelsandahotplate.org
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