Phil Gramm, former Texas senator and erstwhile economic advisor to John McCain, told the Washington Times on July 9 that the United States had become a “nation of whiners.” (See clip below.) Dismissing the current bout of economic turmoil, Gramm went on to insist that the country was only in a “mental recession,” and that “We’ve (The U.S.) never been more dominant. We never had more natural advantages than we have today.”
Democrats understandably seized on this and were quick to depict the McCain camp as “insensitive” and “out of touch.” Senator McCain, meanwhile, was quick to repudiate Gramm’s comments and throw his former advisor under a bus, saying that Gramm was “in serious consideration for ambassador to Belarus.”
Technically, Gramm is right: We haven’t officially entered a “recession” as it is traditionally defined (at least not according to the numbers reported so far). And unemployment is only up to 5.5%, which, while higher than it’s recently been, is still low when benchmarked historically and against other industrialized countries.
Unfortunately for Gramm (and for the rest of us), the reality is far worse than the GDP figures suggest. While unemployment and growth have yet to crater, the plunge in house prices, skyrocketing inflation, and credit crunch make the current economy feel–if not recession-like–horrible.
Housing prices, for example, are down more than 18% year-over-year in real terms. The average American derives more than 70% of their net worth from home equity, and when housing prices crash, this wealth evaporates. In the first quarter alone, more than a trillion dollars of net worth evaporated (From $57.67 trillion to $55.97 trillion).
Then there’s inflation, which has crept up to its highest levels seen since the late 80s. Soaring energy and food prices mean that whatever modest increase we’ve seen in wages has been effectively negated. In fact, adjusted for inflation, we actually are in a recession, since both core and non-core CPI have outpaced economic growth for the last two quarters.
But in the world of Phil Gramm, it’s all in our minds. (Clip below):