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Brooks Wilson's Economics Blog: GDP Growth for 2011

Saturday, January 28, 2012

GDP Growth for 2011

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.

1 comment:

  1. (Devil's Advocate time) In response to the question asked about whether we are out of the recession or not. In my opinion, a lot is going to depend on the elections. If we get Republicans in the White House, and control of Congress goes to the Republicans, we are looking at a crisis worse than the Great Depression. The Republicans will remove what remaining controls there are over the crooks in the top one percent of this country, and we will see a return to the days when workers were paid $30.00 for 30 18-hour days and business killed off 10% of the workers per month due to shoddy safety practices. The thieving rich under these conditions will just get richer and the middle class will continue to sink into the poor category. If Obama gets reelected and the Democrats get control then they will force the rich to pay their fair share (90%) and give others the change to climb the ladder out of poverty.