The Most Ridiculous Comparison Since.....??
The chart above shows annual real GDP growth (BEA data here) from: 1) 1930 to 1932 (-25.7% cumulative decline) and 2) 2007 to 2010, assuming: a) fourth quarter growth this year of 3.5% and no revisions to the Q3 estimate of 3.5%, and b) real GDP growth next year of 2.5% (WSJ consensus forecast).
Under those fairly realistic assumptions there would be a decline in real GDP over the "Great Recession" in only one year (2009), preceded by one year of below average growth of 0.40% (2008), and followed by a return to average growth of 2.8% in the next year (2010). This of course also assumes no "double dip recession" next year.
But assuming the assumptions above hold, wouldn't the endless comparisons of recent economic conditions to the conditions of the Great Depression seem kind of silly? After all, the three annual consecutive declines in real GDP growth of -8.62% in 1930, -6.50% in 1931 and -13.1% in 1932 were far, far worse than a single one-year decline in real economic output of -2.4% in 2009.
But assuming the assumptions above hold, wouldn't the endless comparisons of recent economic conditions to the conditions of the Great Depression seem kind of silly? After all, the three annual consecutive declines in real GDP growth of -8.62% in 1930, -6.50% in 1931 and -13.1% in 1932 were far, far worse than a single one-year decline in real economic output of -2.4% in 2009.
Update: Just to be really optimistic for a change, if Brian Wesbury is right and Q3 real GDP is later revised up to 4% (from 3.5%), and if Scott Grannis is correct that today's ISM rebound results in Q4 real GDP being as high as 5%, the annual decline for 2009 real GDP would be -2.25% instead of -2.4% as shown in the graph.
13 Comments:
Gee, lifes not so bad. Purhaps the great depression comparsions were over done. These facts put it in perspective. Our soup lines are not as long. Nor do we have the great dust bowl problem or as many homeless tent cities. And just think we didn't have all those new casio's back in the 30's like today. Let's rename Detroit Casio Town, the new great American pastime. No need to waste time and money getting a college degree when your just going to be a Casio dealer. This is our 21st century New Deal job creator.
We can have our great depression, too, if we want to.
Let's restrict the money supply, raise interest rates, and balance the budget.
The Article Title has a question within it: The Comparison is the Most Ridiculous since….?
Answer: “Jobs Saved” .
So, all this stuff about Washington destroying the economy--pretty much of a joke, huh?
Good-bye, recession. In the construction, building, architecture industries, there will be years of recovery needed. Many people just got plastered.
Sure hope job growht starts pronto.
Bernanke: Print money, honey. Ain't no inflation anywhere I can see.
Obama: Spend, spend, spend.
If anything, we are doing too little.
Having just read the Lord of Finance which deals with the central bankers who bumbled into the great depression, its clear that we did not have the cascading crisises that lead to it. In particular we managed to stop the bank collapse that lead to the trough of the depression in march 1933. We also don't have the gold standard fetish that the bankers did back then, which lead to the raising of interest rates in the midst of a down turn to keep gold. Note that then as now there were folks saying that run away inflation was just around the corner.
Roosevelt believed that due to the 40+ plus fall in the price level we needed some inflation to kick start the economy, so he devalued the dollar to 35 from 20. So in this case a weak dollar was part of the way out, although it also undermined some confidence.
Mark,
Should the reference to years "2008" and "2007" in your second paragraph be 2009 and 2008?
Under those fairly realistic assumptions there would be a decline in real GDP over the "Great Recession" in only one year (2008), preceded by one year of below average growth of 0.40% (2007), and followed by a return to average growth of 2.8% in the next year (2010)."
Bob: Yes, you are exactly correct, thanks for noticing... It's fixed now.
Mark
2007-2009 was the deepest and longest recession since the GD as measured by GDP.
this is not an apples to apples comparison. inflation (and therefore real GDP) were calculated very differently in the 30's than they are now. (likely to our current detriment).
the extent to which a modern geometrially based hedonics modified CPI differs from the simple arithmetic version used in the 30's (and up through the 80's) is so great that comparing data from one side of the calculation change to the other is nearly meaningless.
if we use 30's style calculation, the recession began in 2001 and isn't over yet.
be very careful equating the two without allowing for how the calculation of data has altered.
Not exactly a fair comparison given the calculation methodologies are different.
Are these numbers adjusted for the increase in M3? or overall social liabilities held off balance sheet by Washington?
It's a good thing that GDP is increasing at such a fantastic rate, otherwise I'd start believing all of the BASHING of the current administration's policies that you've thrown into the mix of your posts.....which is it Mark?
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