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Monday, May 4, 2009

Why aren't consumers more worried about a depression?

In past, milder recessions, consumers (everyone) has been more worried about economic collapse than today:

Depression Scares Are Hardly New, by Robert Shiller, Commentary, NY Times: What is the chance that the current downturn will morph into another Great Depression? That question has been preoccupying people for months.

The popular mood has a huge impact on the economy, so it’s worth noting what many people seem to forget: Depression scares come and go. And by one authoritative measure, the current outbreak of concern has been surprisingly mild.

...A high score on the question means that the answers tilted toward continuous good times, with a low score tilting toward unemployment or depression. Since 1960, the average score has been 94.If we define a depression scare as any time the score is below 65, there have been four such scares since 1951. They were in the periods from 1974 to 1975, during which 47 was the lowest score; from 1978 to 1982, with a low of 41; from 1990 to 1992, with a low of 54; and from 2008 to 2009, with a low (to date) of 59. Note that so far, at least, the worst reading in the current scare has not been as bad as those of the previous episodes.

...But why is this new depression scare apparently weaker than the others...? ... One can only speculate. Now that oil prices have moderated, it’s possible that most people have less vivid worries than they did in 1974-75 or 1979-82 because their economic problems are not evident every time they shop or drive their cars.

During those earlier two scares, out-of-control inflation was widely visible, but today many people haven’t personally experienced rising unemployment and foreclosures. And it’s possible that the optimistic tone of the president and the Fed has assuaged some fears, and that people might believe that the government is fixing their problems.

This time, the reasons to fret about a possible depression may seem less concrete. For most people, the worries ... about things like bank stress-test results or the “OIS-Libor spread,” are rather hard to comprehend.

As Franklin D. Roosevelt famously said during the Great Depression, “the only thing we have to fear is fear itself.” Let’s hope that is true, and that the relative complacency in the general population is good news for the economy. ...

I haven't found a historical graph for the U of MI survey about depression, but that question is used to help create their index of consumer sentiment which is graphed since the late 1970s at FRED.

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