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This post was originally posted on June 2nd, 2006. Despite some good economic news in the intervening 10 months, consumer confidence remains low and continues to fall.

"FREAKOUTONOMICS”, OR WHY ECONOMIC PROSPERITY CAN STILL FEEL LIKE A “PANIC”

“Panic” is a term used to describe economic downturns in the American Nineteenth Century. Panics occurred, according to generally accepted historical economic measures in 1837, 1857, 1873 and 1893. Lots of reasons are posited for the more extreme cycles in the 19th century. These include bank failures due to lack of financial oversight, currency fluctuations, speculative excesses and trade wars. But readers must also remember that the US was a “developing country” in the second half of the 19th century and subject to the swings that are endemic to such economies.

In today’s New York Times, Charles R. Morris penned an Op-Ed piece entitled “Freakoutonomics”.[i] Morris begins his piece with these observations:

Last month saw one of the sharpest drops in consumer confidence since the recessions of 1979-1982. But those were truly dreadful times. Oil prices tripled, rates on home mortgages shot into the mid-teens, the stock market was a disaster area and unemployment rates reached double digits.

Over the past three years, by contrast, American economic performance has been almost glittering. Inflation is still low, while employment and productivity have all been rising strongly. True, stock markets are clearly nervous, and the sharp upsurge in gas prices is adding to consumer skittishness. But the reaction still seems inconsistent with the economy's underlying strengths. [AUTHOR’S NOTE: The Author does not entirely share Mr. Morris’ assessment of the economy as “glittering”. Unemployment is still relatively high; GNP growth has been somewhat below the historical averages. But all in all, especially when compared to 1979-1982, things aren’t bad.]

There are parallels with another historical period, however, that suggest the deeper currents of uneasiness.

SO HOW ABOUT THOSE GOOD OLD DAYS?

The “good old days” that Morris recalls is the period of the “Panic of 1873”, “ or sometimes called the “Depression of 1873”. Riots occurred in major cities. And in prototypically American Nativist (and racist) fashion, immigrants were scapegoated:

Unrest in San Francisco explodes into a vicious anti-Chinese pogrom. The same period marks the glory years of the rural Granger movement and the Roman-candle growth of the Knights of Labor. American Populism puts down permanent roots.

Despite the “panic” and civil unrest, the economy was actually growing robustly. New economic historical models show that except for a recession in 1873, the 1870s featured some of the fastest economic growth in American history.[ii]

DUDE, WHERE”S MY ECONOMY?

According to Morris:

Employment grew strongly, faster than the rate of immigration; consumption of food and other goods rose across the board. On a per capita basis, almost all output measures were up spectacularly. By the end of the decade, people were better housed, better clothed and lived on bigger farms. Department stores were popping up even in medium-sized cities. America was transforming into the world's first mass consumer society.

Sounds a lot like the 1980s and 1990s, doesn’t it? So from whence comes this “gnawing unease”, this “brooding pessimism”? Unease at the bottom, opulent “thievery” at the top? Morris tells us of the social and economic changes between the 1830s and the 1870s:

Before the Civil War, America was perhaps the most egalitarian society in the world. But the unbridled entrepreneurialism of the 1870's gave rise to the robber barons. Even if ordinary people were doing better in the 1870's, the yawning gap between the very rich and everybody else fanned resentments. Interestingly, wealth inequality in today's America is roughly the same as in the Gilded Age.

The sharply increased social and geographic mobility of the 1870's set people adrift from traditional sources of security in families and villages. In our own day, the destruction of employer-employee relationships, the erosion of pension protection and employee health insurance may be creating a similar loss of moorings.

SO IT IS ALL RELATIVE?[iii]

There is not enough space and time to delve into the topic of “class consciousness” in America. The rich on the right deny its existence and decry its mention. The middle classers usually assume, despite much conflicting data, that if they work hard, play by the rules and “buy and hold” conservative investments, they will move up their ladder. And their kids will start of with some more steps up. Some of them will, but many of them won’t.

The poor, well to quote Pvt. King (played expertly by Keith David) in the seminal Vietnam War film “Platoon”, “The poor are always being f**cked over by the rich. Always have, always will”. This may not be an entirely accurate sentiment, but it is ironic, isn’t it, that poverty is intractable and expanding in the richest nation on earth. The Author will leave this one for the Readers to ponder.

Morris closes with this paradox. Despite the fact that the even the poorest American can get enough to eat, nearly always has a roof and heat, and may obtain life-saving medicine that would have felled kings, queens, popes, robber barons and emperors of the 19th century, most people feel things are worse today, not better. Morris believes there is an innate sense of fairness and equality that pervades the American psyche, a sense that finds less confirmation in 2005 than in 1975. Morris writes:

If one counts only the size of houses and cars, and the numbers of electronic gadgets stuffed into rec rooms, Americans are probably better off than ever before. But as the 1870's suggest, economic well-being doesn't come just from piling up toys. An economy has psychological or, if you will, spiritual, dimensions. A conviction of fairness, a feeling of not being totally on one's own, a sense of reasonable stability and predictability are all essential components of good economic performance. When they were missing in the 1870's, in the midst of a boom, the populace was brought to the brink of revolt.

BREAD AND CIRCUSES, ANYONE? YOU CAN EVEN GET THEM AT THE DRIVE-UP WINDOW.

WE SAID IT IN THE LAST POST AND WE WILL SAY IT AGAIN, (ALTHOUGH WITH NO SENSE OF GLEE) YOYOMF IN THE DESERT OF THE REAL!

[i] http://www.nytimes.com/ Registration is required but it is free.
[ii] http://www.nytimes.com/,
[iii] The Author means no offense to his “relatives”. It would violate his sense of propriety and “fair play.” After all, he is richer, smarter, more handsome, and generally better than they are. ;-)