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Politics : Liberalism: Do You Agree We've Had Enough of It?
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From: TimF9/9/2009 5:53:40 PM
   of 224749
 
Still Not the Great Depression 2.0
August 2, 2009 by Donald Marron



dmarron.com

A teacher emails me a query:

I am a U.S. history teacher and an avid reader of your blog, and I have a question which you might want to address (again) in your blog. I came across a story saying that we were coming out of "our worst recession since the 1930s." This strikes me as curious, considering our unemployment levels are not as high as the 1982 recession, I don't think. By your reckoning, assuming the worst has passed, has this been the worst since the 1930s? That raises a bigger issue:what standard should one use to "judge" a recession?

There is no right answer to this question, as various macro variables reflect economic conditions, and they do not move perfectly in lockstep. But a very standard metric is the peak-to-trough decline in real GDP. The chart above, from Donald Marron, shows that by this measure, the current recession is the worst since the Great Depression, as as long as you exclude the return to trend after the World War II boom.
Note that saying the worst since the Great Depression may inadvertently lead the reader to think that we are somehow getting close to the Great Depression in severity. As the chart shows, that is not at all the case.
One might wonder why the unemployment rate was higher in the 1982 downturn if that recession had a smaller decline in GDP. Part of the answer is that the 1982 recession followed closely after the 1980 recession, from which the economy had not fully recovered when the next downturn began.

gregmankiw.blogspot.com
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