Great Depression II? Not Even Close
Real GDP contracted annually by 8.6%, 6.4% and 13% (updated) in the first three years of the Great Depression, for a cumulative decrease of almost (updated ) 26% (see chart above). According to the Philadelphia Federal Reserve Survey of Professional Forecasters (released February 13, to be updated this Friday), real GDP will contract this year by -2.0 before increasing by 2.2% next year. Even if real GDP contracts by much more than 2% this year before returning to positive growth next year, it will be nothing close to the contraction in real GDP of the early 1930s. Related: See guest Freakonomics post "This is Not Another Great Depression," which concludes: "We are experiencing pain now, but the problems of the Great Depression were several magnitudes greater."
Related: The White House is projecting that the nation's economy will shrink by 1.2% this year and increase by 3.2% next year. In addition, it projects that "by the end of this year," the economy will be growing at a 3.5% annual rate.
13 Comments:
A large tax cut would have cleared the market of excess assets and goods faster, to facilitate growth, along with helping financial firms (since some of the tax cut would have been used for consumption and some used to pay-down debt). Instead, new assets and goods are being created, through massive public spending.
i'm not as optimistic as prof perry, but i do agree that there is a lot of questionable analysis going on. i think this guy nails it:
>>>Generally, we find such failed "analysis" takes the form of:
"In 19xx, the ____ Index dropped __ % over __ months, _________ economic indicators were _________, so judging from history, we conclude that now, we should expect X, Y and Z..."
Now, were conditions today exactly, or at least mostly the same as they were during previous recessions/depressions, I could see how this sort of analysis might make sense. Contrary to the claims of others, I think its quite clear that global (and regional) dynamics and fundamentals are materially different than they have been at any earlier period of human history, which means these analyses constitute at least one type of logical fallacy, and are thus of little or dubious value.<<<<
Hmmm, this is interesting...
Personally I see these forecasters that the Philly Fed talked to as being more than a bit optimistic: "The U.S. economy is headed for two quarters of negative growth in the first half of 2009, according to 43 forecasters surveyed by the Federal Reserve Bank of Philadelphia"...
Meanwhile suprise, suprise the present administration is zealous in its optimism: White House Sees 3.5% Growth by Year-End, Exceeding ForecastsI wonder if Jeff Jarvis over at Seeking Alpha might be more on target? Depression? Recession? No, It's the Great RestructuringCARPE DIEM
When this sort of thing happens under a Democratic president, it is a mild recession, usually not noticed until later. When this happens under a Republicant president, it is a major catastrophe that is called years before it starts and never really ends.
Just sayin.
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One thing we can learn from history: we always overplay things. When something is bad, we exaggerate and feel as if it is REALLY bad. I'm still bullish on America. Do we see a parallel market for the dollar? Are our educated workers moving overseas in hordes to seek employment elsewhere? What is the cost these days to marry an American? (It has DOUBLED in the last five years.) America, for the time being, is still the superpower of the world.
Nassim Taleb might have a different view. He was just in Shanghai talking about this very topic.
Robert Miller: Sorry, I was staying in a hotel last night and didn't have access to the data. The actual declines were -8.6% in 1930, -6.4% in 1931 and -13% in 1932, for a cumulative contraction of 28%.
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Robert Miller: Thanks, you're correct. Changes of -8.6%, -6.4% and -13% would total to a cumulative decline of -25.6% from the original value. Because the original value is decreasing, the percentage declines are on a shrinking base value. Therefore, the cumulative decline is less than the sum of the percentages.
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Thanks for a really interesting article and comments. Perhaps history will rename this period as "the Not-So-Great Depression II???"
@Bobble
Thanks for the shoutout. The sheer amount of fauxnalasys we've witnessed over the past 2 or so years is nothing short of disgusting, and when combined with shameless and spineless promotion has only furthered our economic woes.
Keep up the good work!
Anal_yst
http://1-2knockout.typepad.com
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