Current Economic Conditions and why this was not the ‘worst economic crisis’ since the Depression by Paul Coomes, Ph.D. Professor of Economics February 17, 2011 An economist is a dismal scientist a tenured professor who works 20 hours a week someone who couldn’t make a living in the business world someone who is pretty good with numbers, but doesn’t have the personality to be an accountant This last recession is still underway represents the worst economic crisis since the Great Depression …. … and therefore calls for drastic measures by governments, or…. was a correction to a housing bubble, and triggered by a financial crisis in 2007
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University of Louisville\'s Paul Coomes Discusses Current Economic Conditions
Professor Paul Coomes, Ph.D., from the University of Louisville College of Business gave a presentation on February 17, 2011 at the UK/CLE 13th Biennial Business Associations Law Institute. A copy of his PowerPoint presentation "Current Economic Conditions and Why This Was Not the \'Worst Economic Crisis\' since the Depression" is now available on the KBA Business Law Section\'s webpage at http://www.kybar.org/350
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Transcript
Current Economic Conditions
and why this was not the ‘worst economic crisis’ since the Depression
byPaul Coomes, Ph.D.
Professor of EconomicsFebruary 17, 2011
An economist is
a dismal scientist
a tenured professor who works 20 hours a week
someone who couldn’t make a living in the business world
someone who is pretty good with numbers, but doesn’t have the personality to be an accountant
This last recession
is still underway
represents the worst economic crisis since the Great Depression ….
… and therefore calls for drastic measures by governments, or….
was a correction to a housing bubble, and triggered by a financial crisis in 2007
1110
810
11
16
6
16
8 8
18
0
2
4
6
8
10
12
14
16
18
20
peak - date recession began
Length of post-WWII Recessions, from National Bureau of Economic Research
(months from peak to trough)
The highest unemployment rate during the latest recession was 10.1%, in October 2009. This is
higher than during the Great Depression
higher than the 1974 and 1982 recession
less than 1982 recession
0
1
2
3
4
5
6
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9
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1968
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2007
2008
2008
2009
2010
Unemployment Ratepercent of labor force unsuccessfully seeking work (through 12/10)
Source:US Bureau of Labor Statistics, from Current Population Survey, monthly, seasonally adjusted
Peaked at 10.1% in
October 2009; now at 9.2%
reached 10.8% in 1982reached 9.0% in 1975
At the worst of the latest recession, 58.2% of adults were employed. This is
the lowest since the Great Depression
about the same as most recessions
higher than the 1974 recession
higher than the 1974 and 1982 recessions
50
52
54
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58
60
62
64
66
1968
1968
1969
1970
1971
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1997
1998
1998
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2000
2001
2002
2003
2003
2004
2005
2006
2007
2008
2008
2009
2010
Employment to Population Ratio% of those aged 16+ working, male and female (through December 2010)
Source:US Bureau of Labor Statistics, from Current Population Survey, monthly, seasonally adjusted
dropped to 58.2%
dropped to 57% in 1982
dropped to 56% in 1975
peaked at 58.2% in 1973
peaked at 60.1% in 1979
peaked at 64.6% in 2000
30
35
40
45
50
55
60
65
70
75
80
85
1968
1968
1969
1970
1971
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1980
1981
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2007
2008
2008
2009
2010
Employment to Population Ratio% of those aged 16+ working (through December 2010)
Source:US Bureau of Labor Statistics, from Current Population Survey, monthly, seasonally adjusted.
Males
Females
Over past forty years, male rate has fallen by 14 percentage points, while
female rate has risen by 14 percentage points
‘Mancession’
Big story: women more educated, taking office jobs, fewer children; over half of women working outside the home.
The stock market, as measured by the Dow Jones Industrial Average, is now
at its lowest level since the Great Depression
is about the same as it was in the 1970s and early 1980s
is 5 times higher than in the 1970s
is 10 times higher than in the 1970s
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1970
1970
1971
1972
1973
1974
1975
1975
1976
1977
1978
1979
1980
1980
1981
1982
1983
1984
1985
1985
1986
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1988
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1990
1990
1991
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2000
2001
2002
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2004
2005
2005
2006
2007
2008
2009
2010
2010
Dow Jones Industrial Averagemonthly closing, 1970 to 2010 (January)
in the 700 to 1,000 range for twelve years, 1970 to 1982
the great boom, 1985 to 2000
yesterday’s close = 12,288
trading in 10‐12,000 range for a decade
Since the 2007 financial crisis, home values in Louisville have on average
fallen by 25%
fallen by 2.5%
remain unchanged
risen by 10%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Annual Home Price Appreciation, Last Twelve Years by Quarter
Las Vegas
Source: Federal Housing Finance Agency; index of value of existing single-family homes in repeat sales or refinancings. Data through September 2010.
Naples
United States
Los Angeles
Housing bubbles in Florida, California, Nevada, Arizona………..
Bubble popped in 2006
hit bottom at end of 2008
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Annual Home Price Appreciation, Last Twelve Years by Quarter
Source: US Office of Housing Enterprise Oversight; index of value of existing single-family homes in repeat sales or refinancings. Data through September 2010.
United States
Louisville
Nashville
MemphisIndianapolis
CincinnatiDayton
Birmingham
Jacksonville
Richmond
Jacksonville
Among peers, only Jacksonville and Richmond had boom/bust.
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Annual Home Price Appreciation, Last Decade by Quarter
9 KY metros
Source: Federal Housing Finance Agency; index of value of existing single-family homes in repeat sales or refinancings. Data through September 2010.
Naples
No sign of any price bubbles or busts in our region….
The average number of persons living in each house now is
1.6 persons per household
2.6 persons
3.6 persons
4.6 persons
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
persons per household
Average Household Size, United StatesWorld War II to present
Source: US Census Bureau, Current Population Survey
2.59
3.56
Appears to have reached a natural lower bound
Responsible for perhaps one‐third of housing boom
For example, in the Louisville MSA, there was a decline in household size from 2.57 to 2.46 between
1990 and 2000.Even with no population growth, that would result
in 17,000 more households.
Many people are worried about the lack of ‘affordable housing’. The Louisville MSA has 350,000 owner‐occupied homes. Of those, how many are valued at less than $100,000?
Ratio of average annual government employee compensation to private industry employees, Kentucky, last 30 years
Federal ‐military
Federal ‐ civilian
State government
Local government, including public K‐12
Number of
Jobs
Average
Annual
Compensation
per Job
Private industry 1,880,119 $36,050
Government, all 371,273 $58,827
Federal ‐ civilian 40,064 $87,899
Federal ‐ military 54,773 $91,975
State government, including public universities 96,914 $48,932
Local government, including public K‐12 179,522 $47,568
Source: US Bureau of Economic Analysis
Kentucky Jobs, Private Industry and Government, 2009
The top 3% of tax payers in US account for
10% of federal individual income tax payments
20%
30%
50%
1.66%
14.99%
24.62%
24.12%
13.52%
8.29%
9.73%
2.44%
0.40%
0.10%
0.04%
0.06%
0.01%
0.01%
0.01%
0.04%
1.12%
6.42%
9.05%
9.02%
22.68%
19.02%
9.26%
4.04%
2.51%
6.30%
3.49%
7.03%
0% 5% 10% 15% 20% 25% 30%
No adjusted gross income [1]
Less than $9,000
$9,000 to $25,000
$25,000 to $50,000
$50,000 under $75,000
$75,000 under $100,000
$100,000 under $200,000
$200,000 under $500,000
$500,000 under $1,000,000
$1,000,000 under $1,500,000
$1,500,000 under $2,000,000
$2,000,000 under $5,000,000
$5,000,000 under $10,000,000
$10,000,000 or more
Distribution of Taxpayers, Federal Individual Income Tax, 2008by adjusted gross income
share of all tax returns
share of all income taxes paid
Source: IRS Statistics of Income
Top 0.6% of income earners paid 33% of income taxes
Top 3% of income earners paid 52% of income taxes
Bottom 41% of income earners paid 1% of income taxes
January 20, 2009Front page, top headline, first paragraph
Obama to Call for a New Era of Responsibility
by Laura Meckler and Jonathan Weisman
Washington - Americans poured into the nation’s capital to celebrate the inauguration of the first black president with parties and parades. But with the U.S. in its worst economic crisis since the Depression and at war on two fronts, Barack Obama was expected to embrace a new culture of responsibilty when he takes office at noon…
The Wall Street Journal is
a mouthpiece of the Republican Party
a socialist rag
a company that employs a lot of journalists who feel that their occupation is in crisis
This decade, the fastest growing market in the Kentucky‐Southern Indiana area was:
Louisville
Evansville
Bowling Green
Somerset
2.9
3.4
4.1
5.5
5.7
5.9
6.4
6.5
6.6
7.8
8.1
8.2
8.2
8.3
9.5
9.6
14.1
15.3
15.7
15.8
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0
Scottsburg, IN
Owensboro, KY
Madison, IN
Elizabethtown, KY
Bloomington, IN
Frankfort, KY
Murray, KY
Campbellsville, KY
Danville, KY
Glasgow, KY
Cincinnati, OH‐KY‐IN
Corbin, KY
Somerset, KY
Louisville, KY‐IN
London, KY
Mount Sterling, KY
Richmond‐Berea, KY
Lexington‐Fayette, KY
Clarksville, TN‐KY
Bowling Green, KY
Population Growth Rates, %, 2000 to 2009
Source:US Census Bureau
Fastest growth rates alongI‐65, I‐75, and Fort Campbell area
‐4.9
‐3.7
‐3.6
‐3.4
‐1.8
‐1.0
‐0.8
‐0.7
‐0.2
‐0.2
0.8
1.8
1.9
2.1
2.2
2.5
2.7
2.7
‐6.0 ‐5.0 ‐4.0 ‐3.0 ‐2.0 ‐1.0 0.0 1.0 2.0 3.0 4.0
Union City, TN‐KY
Harrisburg, IL
Middlesboro, KY
Vincennes, IN
Central City, KY
Huntington‐Ashland, WV‐KY‐OH
Madisonville, KY
Terre Haute, IN
Bedford, IN
Paducah, KY‐IL
Maysville, KY
North Vernon, IN
Mayfield, KY
Greensburg, IN
Jasper, IN
Seymour, IN
Evansville, IN‐KY
Washington, IN
Population Growth Rates, %, 2000 to 2009
Source:US Census Bureau
‐50,000 0 50,000 100,000 150,000 200,000
Murray, KY
Corbin, KY
Danville, KY
Glasgow, KY
Owensboro, KY
Mount Sterling, KY
Frankfort, KY
Somerset, KY
London, KY
Elizabethtown, KY
Evansville, IN‐KY
Bloomington, IN
Richmond‐Berea, KY
Bowling Green, KY
Clarksville, TN‐KY
Lexington‐Fayette, KY
Louisville, KY‐IN
Cincinnati, OH‐KY‐IN
Components of Population Change, 2000 to 2009
Births minus deaths
International migration
Domestic migration
statistical discrepancy
Source:US Census Bureau
Lots of babies at Ft. Campbell, Ft. Knox, E’villeForeign‐born