Gasoline is selling for less than $1.50 per gallon, about half the price that prevailed a few months ago. Mortgage rates are lower than they have been in almost four decades, so applications for mortgages are soaring to levels not seen in five years. The unemployment rate is 6.7 percent, not bad by historic standards. Consumers who benefited from substantial pre-Christmas discounts–65 percent-off on cashmere sweaters at Neiman Marcus–are finding even bigger post-Christmas bargains. Anyone heading overseas is ahead of the game: we once had to shell out $2 to buy £1, and about $1.60 to purchase a single euro; we can now buy those currencies for less than $1.50 and $1.40, respectively. A new, dynamic, and best of all, black, president is about to move into the White House, bring the troops home from Iraq, give some 150 million Americans a tax cut, and restore America’s prestige in the world. So we must be of good cheer as we digest our Christmas turkeys and prepare to celebrate the New Year.
Hardly. Year-end tidings are not of comfort and joy. Yes, gasoline for the auto tank is cheaper, but who is in the mood for a motor trip when the economy is in a very different tank, to use the non-economist’s vernacular for recession? Yes, the unemployment rate is relatively low, but that is because millions have dropped out of the labor market after extended periods of searching for a job, and others have been forced to accept part-time work when they could not find a full-time job. Add those to the workers officially classified by the Department of Labor as unemployed, and the jobless rate doubles to over 12 percent. And that doesn’t count those working shorter work weeks or taking pay cuts.
Yes, mortgage rates are low, around 5 percent for the traditional 30-year fixed-rate mortgage. But almost no one can get one, as the banks hoard money and do business only with the least risky applicants, or find that they have laid off so much staff that they don’t have enough workers to process applications. Besides, with house prices falling faster than at any time since the Great Depression, who wants to buy a house now when it might be available at a lower price in a few months? Most of the mortgage applications are aimed at refinancing at the new lower rates, so the inventory of unsold homes remains at about twice normal levels, and half of the homes that do sell are going for prices that don’t cover the outstanding mortgage.
And, yes, an overseas vacation would cost less than only a short while ago, but who wants to spend money on a trip to some resort where he might end up the target of deranged Muslim fanatics, or when his or her job might disappear while he is sampling the pleasures of London’s National Gallery, the Louvre, or the world’s fleshpots. Better to stay home.
And most definitely stay away from the stock market, where every time share prices show a sign of life some killer event occurs, the latest being Bernie Madoff’s $50 billion heist under the noses of the regulators who ignored warnings because they came from Madoff’s competitors. The Wall Street Journal reports that between 2002 and 2005, investors put an average of $62 billion a year into stock mutual funds (unit trusts), before getting nervous and pulling out about $40 billion a year. Well, in October nervousness turned to panic, or resignation, and investors pulled a record $72 billion from such funds. Some put the money in short-term Treasury bills that yield no interest– what you can earn by stuffing the money under a mattress. One wag says that the way to diversify is to put some of your money under your mattress, some under your wife’s, and some under your children’s.
Adding to Americans’ sense of confusion is the gap between what we see and what we are told. There is an old joke about the man who, when caught by his wife in bed with another woman, first denies the presence of his paramour, and then indignantly challenges his wife, “What do you believe, what you see with your own eyes or what I tell you?” So, with the level of prices. The government says that living costs are dropping–the costs of food, housing, apparel, autos, and oil are all dropping. Meanwhile, old folks see the costs of medical care and prescription drugs soaring, and consumers claim that every time they visit the supermarket they get less for their money, either because prices have risen, or because package sizes have shriveled. So do they believe what they are being told by the statisticians at the Department of Labor, and by Fed chairman Ben Bernanke as he pumps cash into the economy to avoid the dreaded deflationary spiral he sees lurking around the corner, or what they see on the price tags in the supermarket and at the druggist?
All seems to be gloom and confusion. But this, too, shall pass. At the end of World War II economists were predicting a resumption of the Great Depression because demand wouldn’t be sufficient to utilize all of the productive capacity built during the war. It didn’t happen, as demand for shiny cars replaced demand for camouflaged tanks. As after every post-war recession, the resilient American economy resumed its growth. Living standards rose; poverty fell; America’s energy-intensive, mechanized agriculture became the bread-basket of the world; the universities over-flowed with students, many benefiting from the GI Bill, all optimistic about their futures; the size of houses grew; household drudgery was replaced by energy-driven appliances that liberated women to enter the work force; freedom to travel multiplied as the real cost of cars fell and incomes rose; longevity increased.
There’s more, but you get the idea. And none of this was by chance. The fact is that America is endowed with ample natural resources to sustain rapid rates of growth. It is blessed with an entrepreneurial spirit that has produced successive waves of the creative destruction that allows the economy to shed the old and move on to the new. Our policymakers, far from perfect, have never gone so far as to stamp out risk-taking, initiative and the incentive to hard work, and have managed to implement reforms that enable markets to function relatively well.
Most of all, our political institutions have been robust enough to survive wars, bitter political differences, and difficulties such as we faced in the close-run 2000 election. If you doubt that, consider the civility and efficiency with which the current transition from a right-wing President to his left-wing successor is being conducted. Four American presidents, from both parties, will dine at the White House at the invitation of President Bush, to share their experiences with Barack Obama and, with the exception of renegade Jimmy Carter, who has no loyalty to the institution or the nation that rejected him, to pledge their help if the new man feels he needs it.
One thing is certain. Barack Obama remains undaunted by the chore before him, and has conveyed his sense of confidence, without even the benefit of FDR’s trademark, a cigarette in a holder held at a jaunty angle. Unlike Roosevelt, who puffed contentedly in public, Obama sneaks an occasional puff when out of sight of cameras and of Mrs. Obama. It is illegal to smoke in public buildings, so the White House is out unless the new President wants to be forced to deny that he ever had a smoke with well, never mind.
This might not be the merriest of Christmas seasons, and for many it is probably one of the harshest in living memory. But this country has gone through worse. The world’s millions have always chosen America as the place in which to make better lives for themselves and their children. That remains true, even as we enter what might be a very difficult 2009. Somehow, we have always managed to take arms against any sea of troubles in which we find ourselves, and to prevail. No reason to believe we have lost that skill.
Irwin M. Stelzer is a contributing editor to THE WEEKLY STANDARD, director of economic policy studies at the Hudson Institute, and a columnist for the Sunday Times (London).
