Tonight I am ensconced in my preferred Portland hotel in anticipation of an early morning presentation. A good opportunity to work in the holiday-decorated lobby bar, listening to Christmas music while logging some quiet work hours throughout the evening.
How quickly, however, a quiet evening can become unsettled. A second glass of wine and an inadvertent click on a link brought me to Larry Kudlow’s webpage. Drawn in, not recognizing the danger, I clicked again and again, and landed in the Wall Street Journal’s op-ed section. The horror of a Peggy Noonan column greeted me:
One of the weirdest, most perceptually jarring things about the economic crisis is that everything looks the same. We are told every day and in every news venue that we are in Great Depression II, that we are in a crisis, a cataclysm, a meltdown, the credit crunch from hell, that we will lose millions of jobs, and that the great abundance is over and may never return. Three great investment banks have fallen while a fourth totters, and the Dow Jones Industrial Average has fallen 31% in six months. And yet when you free yourself from media and go outside for a walk, everything looks . . . the same.
Everyone is dressed the same. Everyone looks as comfortable as they did three years ago, at the height of prosperity. The mall is still there, and people are still walking into the stores and daydreaming with half-full carts in aisle 3. Everyone's still overweight... Nothing looks different.
It won’t be a real recession until we are all covered in nothing but rags. Still, look at the bright side – we will have finally cured the obesity epidemic. We may be poor, but at least we will be thin.
I hear this kind of commentary frequently: “Of course we are not in a real recession – look at all the cars at the mall!” Yes, people continue to shop – they shopped during the Great Depression as well. They even went to movies.
Economies generally don’t spiral into oblivion. And on any given day, we generally don’t see “everyone.” Mall traffic is the worst of the anecdotal evidence. It tells you nothing about the composition of spending. Does Noonan know if the shopper has downgraded from Nordstrom’s (NYSE:JWN) to the Gap (NYSE:GPS)? Or if they purchased only one shirt when they normally would have purchased three? And what exactly does a sale of only one shirt imply for the firm’s business model?
It is simply much more complex than the number of cars at the mall. Noonan forges on:
In the Depression people sold apples on the street. They sold pencils. Angels with dirty faces wore coats too thin and short and shivered in line at the government surplus warehouse. There was the Dust Bowl, and the want of the cities. Captains of industry are said to have jumped from the skyscrapers of Wall Street. (Yes, those were the good old days. Just kidding!) People didn't have enough food.
Suicide is funny, right? And again with the food. Perhaps Noonan, so convinced that people are still eating, should have stopped by the Eugene Register Guard website this weekend:
Given the widespread and escalating economic hardship throughout Oregon and the nation, it’s no surprise to see it trickling down to schools.
The most easily quantifiable measure is the number of students signing up for free and reduced-price meals through the National School Lunch program. Though statewide numbers aren’t yet available, the number of children receiving subsidized meals in the Eugene district is up 8 percent over this time last year. In Bethel, Fern Ridge, Creswell and Springfield, it’s up by at least 10 percent.
“I think the biggest thing we noticed during registration this time was a lot more families moving in together to lower living expenses,” said Jim Crist, principal at Springfield’s Ridgeview Elementary School, which saw the percentage of students signed up for free or reduced meals swell from 31 percent last October to 43 percent this October.
Cafeteria manager Sharon Gregory said the change has been especially dramatic at breakfast, served before school for 95 cents for kids who pay in full.
Apparently more people don’t have enough food compared to this time last year. Just not the people Noonan associates with.
I asked an economic expert a few weeks ago if a second Great Depression would come to look at all like that, like a catastrophe, and he said no, not at all. In 1930 we had no safety net. Unemployment benefits, food stamps, welfare, an interlocking system of city, state and federal services—these things will keep it from being so bad.
Not a bad answer. But after acknowledging the benefits of a social safety net, Noonan then laments the potential widening of that same net:
But in tough times we will surely expand unemployment benefits, and welfare, and food stamps and housing assistance, which will mean more and greatly accelerated spending, which will mean bigger and steeper deficits, and higher taxes, with the one feeding on the other, which may mean an economic death spiral comparable to, say, Britain in the decades after World War II, its economy mired and held down by government control and demands. It continued more than a quarter century, until the change of economic thinking encapsulated in the phrase "the Thatcher years." Is that what this will be?
The safety net has so far prevented economic calamity but will cause an economic calamity if expanded. No thought given to the possibility that a safety net designed for a typical postwar business may be, and is likely, insufficient to cushion the blow from a deeper and longer recession. Just a quick leap from a 26 week extension of unemployment benefits to the crushing weight of socialism.
Noonan concludes that the recession is all in our heads:
So where is GDII happening? Right now mostly in conversations between wives and husbands, in families and among friends, about selling, about digging in, about layoffs, and not taking chances, and reduced income, and fear.
So the 11.8% of the workforce unemployed by the U-6 measure, or the 500k+ filing for unemployment insurance each week are not having conversations with their families about where the next rent payment or trip to the grocery store is coming from? Would Noonan be happier if that number was 15%?
You get the idea….