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Economy’s down but certainly not out

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Kai Ryssdal: We were sitting around this morning trying to figure out how to give 2008 a swift kick in the pants as we leave it. As often happens at times like that we asked our Senior Business Correspondent Bob Moon for his best ideas. We told him to go think about it for a while and let us know.

But what Bob came back with is a more moderate reading of how bad things have really been this year. You’re almost certainly sick and tired of hearing that the economy’s taken its biggest hits since the Great Depression. And that’s true. But Bob reminds us we were in pretty good shape coming into this whole thing.

Bob Moon: It might be worth noting that we’re heading into the new year with numbers that look a lot like those of four years ago. Gasoline prices are back to levels we haven’t enjoyed since 2004. Inflation? The lowest since 2004. Home prices? Back to 2004 values. You can even find a fixed mortgage at rates not seen since, well, you guessed it.

So while it’s true that key economic measures have suffered drops not seen in decades — and in many cases, since the Great Depression — a lot of the actual numbers compare to more recent times.

Robert DeYoung is a finance professor at the University of Kansas. He points out that, especially with the housing market, the readjustments we’ve seen are relative.

Robert DeYoung: If a strong economy declines, that can leave . . . still leave us in a relatively good place. If a weak economy declines, that leaves us in a terrible place. So the decline in housing prices, in a way, is a correction, because housing was overpriced. Painful as it is now, in the long run the market always works.

Even if the market for stocks hasn’t worked so well lately, it could be worse. While the Dow ends the year down more than 30 percent, China’s Shanghai index dropped 66 percent, and Russia’s benchmark share index fell 72 percent. Still, Professor DeYoung reminds us that even those losses don’t come close to the Dow’s 85 percent plunge from its 1929 peak.

DeYoung: That’s a mountain, and I wouldn’t say this is a molehill, but this might be a foothill compared to the Great Depression.

At George Mason University, economics professor Russell Roberts is worried, though, about another year this might compare to.

Russell Roberts: I think the reason people are nervous is not that we’re in 1933, which was the worst year of the Great Depression, but that we might be in 1930, on the precipice of what might lead to a Great Depression.

Roberts says whether we can all stop making these comparisons will depend keenly on whether government leaders succeed in making the tough choices looming in the year ahead.

In Los Angeles, I’m Bob Moon for Marketplace.

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