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Comparing the Early 1980s to Now & Growth Estimates

 
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PostPosted: Thu Feb 19, 2009 6:35 pm    Post subject: Comparing the Early 1980s to Now & Growth Estimates Reply with quote

http://3.bp.blogspot.com/_otfwl2zc6Qc/SZoeacBhYqI/AAAAAAAAJRo/Lgyy8QAAJzA/s1600-h/1980s.bmp

http://3.bp.blogspot.com/_otfwl2zc6Qc/SZrkdiksW2I/AAAAAAAAJSI/WV8tayHCkEk/s1600-h/gdp.bmp

Mark said...
The early 1980s was a much better situation to be in. The economy was weak because interest rates were sky high, but they had plenty of room to fall from there.

Where do we go from here?

Buce said...
As I recall the main reason for the record-high 1980 inflation was Paul Volcker, who tamed inflation and paved the way for the sunshine of the early Reagan years. Do you regret the sunshine of the early Reagan years?

PeakTrader said...
In the early '80s, inflation was high, because there was too much money chasing too few goods, and interest rates were high, because there was so little capital. It's the complete opposite today.

Of course, global economic growth, capital creation, and massive foreign capital inflows will slow. So, it'll be a paradox U.S. output will be higher in the 2010s, than the 2000s, while U.S. living standards rise at a slower rate.

Anonymous said...
It **WAS** a lot better in the early 1980s.

The household debt service ratio was less than 11% in the early 1980s. Today it is 14%.

Homeowners' equity in the early 1980s was 70%. Today it is less than 45%.

Household personal savings rate in the early 1980s was 11%. Today it is 3.5%.

Ralph Short said...
To say that the early 80's were better because of high interest rates, and therefore plenty of room to decline, makes as much sense to me as telling someone who is 200 lbs. overweight, he is in better shape than the slightly underweight fellow because look at how much he can lose.

PeakTrader said...
High prices and high interest rates cause people to spend less and save more. To say the economy was better in the early '80s, because there were too few goods and too little capital ignores the real economy. Ultimately, you want to maximize the quantity and quality of output per capita at a sustainable rate.


Leon Bayer said...
You miss one big point: We are only 1 year into this mess. Give the present crisis a few more years, and your baseline will be 1933, not 1980.

PeakTrader said...
Demographics don't support a Great Depression. A long-wave bust, similar to the 1870s, 1930s, and 1970s may begin when the last of the Baby-Boomers (born between 1946-64) reach 65 in 2029. Also, it may be difficult to have an economic bust without an economic boom. Monetary Trends-Federal Reserve Bank of St Louis on page 10 has a chart that shows U.S. actual output was below potential output throughout the 2000s.

RentingSucks said...
The point is this. Interest rates are a big lever used to speed up and slow down the economy. They were high in the 1980's because inflation was high (trying to slow down the economy). We crank them low to pull the economy out of deflation. Right now the lever is all the way to the bottom and needs to go lower but it can't unless you are willing to pay the bank to take your money. So in that sense we're in bigger trouble now than we were in the 1980's because the lever could go in both directions as needed but now it can't.

This is also why this whole blog post is a little silly. Comparing interest rates in an inflationary period agains a deflationary period and saying on that basis it's not so bad doesn't really make much sense.

Graham said...
What makes no sense is taking all the key economic indicators of whether or not we're prosperous and saying they don't count in this situation because they don't agree with your point of view.

These arguments are ridiculous, You can't say that your economic indicators are the ones that show how bad it is, and not the one agreed on well before the current recession just because you believe we really are as bad as the media says. Its the same as telling a homeless person he's better off than you because your definition of being well off is whether or not you worry about a mortgage payment.

If this really is the second Great Depression, where are the mass exodus to California, where are the stock brokers leaping from windows, where are the banks that refuse to give you your money because they don't have it? Where are the hoover towns?

fboness said...
Indeed. I lived through the eighties and it was worse than today. Thank God we will never elect another Carter. Oh, wait...

poor boomer said...
PeakTrader said:

High prices and high interest rates cause people to spend less and save more.


High prices and high interest rates cause poor people to spend more and save less.

PeakTrader said...
Poor Boomer, so, when the price of a product rises, you're more likely to buy that product, rather than substitute a cheaper product, or save at a higher rate. Also, of course, you're more likely to borrow when interest rates rise, e.g. to buy that product you believe is too expensive.

poor boomer said...
PeakTrader said:

Poor Boomer, so, when the price of a product rises, you're more likely to buy that product, rather than substitute a cheaper product, or save at a higher rate. Also, of course, you're more likely to borrow when interest rates rise, e.g. to buy that product you believe is too expensive.

poor boomer said...
It appears that you have made two reasonable but - in the instant case - erroneous assumptions, namely that I have not already substituted (and have run out of cheaper substitutes), and that I have available credit with which to borrow.

After fixed expenses for food, health insurance, and student loan payment, I live on approx $75 per month, plus food stamps.

My idea of discretionary spending is, do I eat boxed mac-and-cheese tomorrow or rice and beans? Having run out of cheaper substitutes to which to switch, higher prices mean I spend more and save less.

Ralph Short said...
So Boomer, why don't you buy a house??
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