The Bureau of Labor Analysis released its estimate of GDP growth yesterday; fourth quarter growth for 2011 was 2.8%, slightly below projections and 1.7% for the year.
The graph “GDP Growth: 1970-2011” gives some historical context to the current recession. The orange line plots GDP growth from 1970 through 2011 and the green dashed line plots average growth for the same period. Because I used annual data rather than quarterly and recessions are normally defined by quarterly data, the graph smoothes out the depth of some recessions. The yellow boxes represent recessions and the length of the boxes, their duration. The black vertical lines represent the end of one presidency and the beginning of another.
One insight from the graph is that the current recession is the deepest during the time frame and that the 1982 recession was the second biggest.
The second graph, “GDP Growth Following Three Recessions,” shows the GDP growth beginning with the first year of negative growth and following the subsequent nine years. The Great Depression (1929-1939) was clearly the longest and deepest, followed by the recession of 2008 and 1982.
The Great Depression and the 2008 recession were both financial crises. Work by Reinhart and Rogoff, This Time Is Different: Eight Centuries of Financial Folly, concludes that financial crises are the most enduring. Not only is the fall in growth larger, but the subsequent growth more shallow. The second graph supports their conclusion.
Next year’s growth statistics will be interesting. Will growth accelerate, more closely mirroring growth following the Great Depression, or will it continue to tract under the recovery following the 1982 recession?
The graphs leave many more questions unanswered than answered. Does policy encourage recovery and if so what type? Rather than focusing on GPD contraction and growth, why not focus on movements in the unemployment rate? How do recessions impact sovereign debt? Asking a good question is exciting, searching for its answer, invigorating, and finding an answer, satisfying.
I am Brooks Wilson an Instructor of Economics at McLennan Community College in Waco, Texas, and I hold a Ph.D. in Agricultural Economics from the University of California at Davis.
I created this blog to allow my students, past and present, to learn economics above and beyond what they learn in class, and to meet others interested in economics.
I am grateful for every reader who could ignore my blog and read those maintained by great economists like Gary Becker, Richard Posner, James Hamilton, Menzie Chinn, Russ Roberts, Brad DeLong, and others.