There are parallels between then and now, but there are also big differences. Now as then, Americans borrowed heavily before the crisis -- in the 1920s for cars, radios and appliances; in the past decade, for homes or against inflated home values. Now as then, the crisis caught people by surprise and is global in scope. But unlike then, the federal government is a huge part of the economy (20 percent vs. 3 percent in 1929), and its spending -- for Social Security, defense, roads -- provides greater stabilization. Unlike then, government officials have moved quickly, if clumsily, to contain the crisis.Read the whole thing.
We need to remind ourselves that economic slumps -- though wrenching and disillusioning for millions -- rarely become national tragedies. Since the late 1940s, the United States has suffered 10 recessions. On average, they've lasted 10 months and involved peak monthly unemployment of 7.6 percent; the worst (those of 1973-75 and 1981-82) both lasted 16 months and had peak unemployment of 9 percent and 10.8 percent, respectively. We are almost certainly in a recession now, but joblessness, 6.1 percent in September, would have to rise spectacularly to match post-World War II highs.
The stock market tells a similar story. There have been 10 previous postwar bear markets, defined as declines of at least 20 percent in the Standard & Poor's 500-stock index. The average decline was 31.5 percent; those of 1973-74 and 2000-02 were nearly 50 percent. By contrast, the S&P's low point so far (Friday) was 30 percent below the peak reached in October 2007.
Monday, October 06, 2008
A Voice of Calm Reason
I really don't think this economic crisis is going to turn into a repeat of the Great Depression. I just don't see governments around the world allowing that to happen with the tools they have to deal with this. Robert Samuelson agrees.