Not finding current data regarding global trade sufficiently depressing, a number of commentators on my weekend post sought discouragement closer to home. One impassioned observer noted that unemployment in the U.S. is now 20%; another got a bit closer to the truth by noting that the most recent broad-based unemployment number (U-6) is 16.5%. All of which seems like U.S. unemployment is getting in the vicinity of The Great Depression peak of 25%.
Well, it’s not. The reason is that the 25% number is most closely comparable to today’s U-3 unemployment number, which is 10%. If you apply U-6 methods to historical data, you will get an unemployment figure for the peak of The Great Depression much higher than 25%. (One attempt from the blogosphere here.) The conclusion being that…
But the picture for the present–as opposed to 1930s–is even better than would be suggested by looking at the above chart. Recapping earlier blog posts of mine, I added in a comment to my own post:
In the 1930s 1/3 of Americans didn’t have a toilet, unemployment peaked at 25% (not 10%, where we are today), and the average life expectancy was about the same as it is in Ghana today. The current recession is not comparable to The Great Depression. Period.
One well-informed reader (thank you dwg) offered this response:
And your statement as regards toilets… I’m not quite sure how to address it. An apples-to-apples comparison is evaluating the drop in real standard of living; no one is saying we’ve moved back to the income levels of the Great Depression; your argument there would appear either a gross misunderstanding of the terms of the debate or a straw man. Even those of the Great Depression era were better off than a peasant in the Middle Ages by many terms of reference. The issue here is: how many people are suffering a diminishing of their quality of life, proportional to their baseline expectation prior to the downturn?
So to be very clear, the toilet comment isn’t a straw man, it’s actually a core point here. And that point is that absolute levels do matter.
Look at it this way: Is (evil, Greenwich-CT-dwelling, CDO-trading) hedge fund manager whose income drops from $2 mil/year to $200K really in the same position as the owner of a shuttered auto dealership who was making $200K/year and now is bringing home $20K? I’m sure you’d agree–No. Well, you know what fraction of the world’s population makes over $20K/year? In terms of individual-wage earners, about 2%. That’s us. We are to the rest of the world what hedge-fund-guy is to us.
These absolutes may not have mattered much in the 20th century but in the 21th century, they do. All those poor schmucks out there in the “developing world” who are still pissing into open sewers are–surprise!–the people who are going to be driving global growth for the next 50 years. That because growth happens where there are unrealized gains to productivity. And those people–people who matter a lot both to America’s future and to its recent past (ref. Greenspan’s “conundrum“)–aren’t taking toilets for granted.
So the really big thing Krugman’s missing isn’t the trend in the global trade data after all. It’s the toilets.