In his column this week David Leonhardt compares the severity of the downturn in 1981-82 with the current downturn. One of the factors that he argues made the 1981-82 downturn more severe is that house inflation-adjusted prices were 30 percent lower in 1981-82. I'm missing something. Why on earth would anyone care that house prices are low. This means that new home buyers can get homes at more affordable prices. Last I heard, we wanted affordable housing, not unaffordable housing. (Leonhardt recently bought a home, which may tell us something here.) The other point worth keeping in mind is that the Current Population Survey (CPS), our main measure of unemployment, is likely missing much current unemployment. The CPS presently failures to cover roughly 12 percent of the adult non-institutionalized population. The people who it does not cover disproportionately belong to demographic groups who are likely to be unemployed, such as young African America men. In an analysis comparing employment rates from the decennial Census, which has near complete coverage, with the CPS, John Schmitt calculated that the CPS may overstate employment rates by approximately 1.7 percentage points. This could mean that it understates the unemployment rate at present by approximately 1.0 percentage point. Addendum: Apologies to David Leonhardt. He clearly was referring to sales being lower in 1981-82 than in the current downturn, not prices.
--Dean Baker
