Recessions, Part 3: The Aftermath
by cactus
Recessions, Part 3: The Aftermath
This post looks at the length & severity of a recession and compares those factors to the length & speed of the previous recession. Data on the length of the recession, in months, comes from the NBER, and data on real GDP per capita (the measure of growth and shrinkage used in this post) comes from the BEA. As noted in the second post in the series (link below), real GDP per capita data “is available annually from 1929 to 1946 and quarterly thereafter. I did no smoothing – that is to say… for an event that occurred in January, February, or March of 2001, as an example, I used figures for Q1 of 2001.”
With that, let’s go. Figure 1 below shows the annualized shrinkage during a recession v. the length of the following expansion (in months).
Figure 1.
No obvious relationship, right. But check out Figure 2, which shows the annualized shrinkage during a recession v. the speed of the following expansion.
Figure 2.
Well…. this seems a bit less unambiguous… in general, the faster the drop, the faster the growth that follows. In general.
Does that suggest rapid growth for us now, what with the Great Recession and all? Actually, no. On an annualized basis, the Great Recession produced only the seventh fastest decline among the 14 recessions that begin with the monster of 1929. What made the Great Recession so awful was its length – it was the longest downturn since the Great Depression. Interestingly, of the only two that were comparable in length – one came a few years after big decreases to the marginal tax rate (the recession that began in ’73) and one came the year big cuts to the marginal rate were announced (the recession that began in ’81). It would appear that the only big decrease in marginal tax rates that didn’t have a very lengthy recession hanging around them happened in 1964. Nobody is saying recessions are caused by tax cuts… but one wonders why tax cutting goodness isn’t a bit better at eliminating the problem.
But I digress… so back to the grind. The next graph shows the length of recessions v. the length of the following expansions.
Figure 3
Again… no clear relationship.
But, there seems a relationship between the length of a recession and the rate of growth during the subsequent recovery.
Figure 4
It seems that in general, longer recessions are associated with faster recoveries. And this does, hopefully, portend good things for the current expansion. No guarantee, of course, but we can all keep our fingers crossed.
Kind of as an aside, in the last post on this topic, reader K Harris asked whether any of this recession analysis can shed any light on the Great Moderation. And to be honest, I’m not sure. Assuming the GM began after the early 80s recession, and ran until the start of the most recent disaster, it was a period with two short, relatively mild recessions. During the expansions, growth was pretty good in stretches (pieces of the Reagan and Clinton administrations) and frankly, pretty lousy (most of the Bush and Bush administrations). I wonder whether perhaps the automatic stabilizers and Fed policy (Reagan and Bush 2 were the beneficiaries of some serious real M1 per capita growth) helped prevent periods in which there wasn’t much of an expansion from dipping into recessions. I dunno. Thoughts?
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Previous posts in this series:
Part 1: Length, severity, and count of Recessions, by the Party of the President in office
Part 2: Length, severity of Recession v. Length and Speed of Previous Expansion
Hmmmm…. I noticed that these posts on recessions don’t have many comments unless there’s a political angle.
We might also ask in each of these recoveries, who was doing the recovering? Growth might consist of businesses return to previous levels of activity with that activity unchanged, or it might signal a shift to a new paradigm. In which case the recovery is a smoothish surface masking big discontinuities — potholes under the puddles, deep ruts under fresh snow.
The “GDP per capita” nowhere implies that each capita gets a steady proportion of the P.
Noni
…except in the “trickle down” sense. 😉
A lot of the most affected people in this Recession are young college grads who can’t find jobs in the fields they trained for. They have huge college debt and can’t find financial aid to go to grad school in some cases. Or, good jobs that existed when they started school have gone up in smoke.
Some recent surveys (mentioned in HuffPo, no link) show that these people are looking for more action from the government to resolve our current ills. And, this is true both for kids who call themselves Democrats and those who say they’re Republican. You hear the same thing from the young people I know–“You guys got the NDEA scholarships, FHA home loans, and Medicare. We got squat!” Ungrateful? You bet. Right? You bet.
Libruls and Conservatives can think what they want to. Us old geezers better shape up or the kids are gonna dump us on the ice flow quick as one comes down the river. Hey, look! Here comes one now!
Cactus,
It seems youf analysis needs to go deeper. What’s been happening recently is that tax cuts have been used to fight weak economies so of course they are associated with the weak economy they are set to fix. This is the case of the tax cuts in the early 1980s and the recent ones onder Dubya. On the other hand the rebounding economy that Bush handed Clinton allowed Clinton to raise taxes and not cause recession.
We had booms in the 1920s, 1960s, 1980s, and strong growth following Bush’s tax cut in 2001. We a had a depression following Hoovers tax hike, prolonged by FDR’s tax hike all in the pre-war period. We had more recent recessions following the Johnson tax hike, and the Bush 41 tax hike. In 1973 you might have noticed an oil supply crisis that dominated the economic headlines and also Nixon’s foolish attempt to control overall price rises. There is no evidence that during this time that the tax cuts were not positive for the economic growth. Also you left out the massive interest rate hikes around 1981 and the tax hikes used to conteract their negative effect. Clinton took a mended economy and slapped a tax on it that it was able to take in stride because other postive factor such as internet technology and low energy prices.
Cactus,
We had booms in the 1920s, 1960s, 1980s, and strong growth following Bush’s tax cut in 2001. We a had a depression following Hoovers tax hike, prolonged by FDR’s tax hike all in the pre-war period. We had more recent recessions following the Johnson tax hike, and the Bush 41 tax hike. In 1973 you might have noticed an oil supply crisis that dominated the economic headlines and also Nixon’s foolish attempt to control overall price rises. There is no evidence that during this time that the tax cuts were not positive for the economic growth. Also you left out the massive interest rate hikes around 1981 and the tax hikes used to conteract their negative effect. Clinton took a mended economy and slapped a tax on it that it was able to take in stride because other postive factor such as internet technology and low energy prices.
It seems your analysis needs to go deeper. What’s been happening recently is that tax cuts have been used to fight weak economies so of course they are associated with the weak economy they are set to fix. This is the case of the tax cuts in the early 1980s and the recent ones onder Dubya. On the other hand the rebounding economy that Bush handed Clinton allowed Clinton to raise taxes and not cause recession.
Cactus,
We had booms in the 1920s, 1960s, 1980s, and strong growth following Bush’s tax cut in 2001. We a had a depression following Hoovers tax hike, prolonged by FDR’s tax hike all in the pre-war period. We had more recent recessions following the Johnson tax hike, and the Bush 41 tax hike. In 1973 you might have noticed an oil supply crisis that dominated the economic headlines and also Nixon’s foolish attempt to control overall price rises. There is no evidence that during this time that the tax cuts were not positive for the economic growth. Also you left out the massive interest rate hikes around 1981 and the tax hikes used to conteract their negative effect. Clinton took a mended economy and slapped a tax on it that it was able to take in stride because other postive factor such as internet technology and low energy prices.
It seems your analysis needs to go deeper. What’s been happening recently is that tax cuts have been used to fight weak economies so of course they are associated with the weak economy they are set to fix. This is the case of the tax cuts in the early 1980s and the recent ones under Dubya. On the other hand the rebounding economy that Bush handed Clinton allowed Clinton to raise taxes and not cause recession. Obama not rushing to increase taxes shows that his is afraid that taxes will significantly hurt economic growth — which has been the republican position all along.
Noni,
Obama’s version of trickle down is that he gives money to build a bridge, road, or save the job of someone that works for the city or state government. That’s nice for the construction crew or policeman or teacher, but just does not do it for the rest of us.
Gotta stay in shape to outrun the next generation…
Cardiff,
Come on. Its been only a few weeks since I’ve dealt with this. I’m getting tired of repeating myself.
Let’s focus on the booms of the 1920s… as noted here (http://www.angrybearblog.com/2010/04/1920s-depression-glenn-beck-thomas_19.html) and here (http://www.angrybearblog.com/2010/04/1920s-depression-glenn-beck-thomas.html) we didn’t go more than 2.5 years without a recession at any point during the “roaring 20s” and while taxes were cut and cut and cut (there’s a graph in one of the posts showing the trajectory of the marginal tax rates and recessions from 1920 to 1940) the end result was the Great Depression. And have a look at that graph I mentioned again… perhaps after that you can ask yourself whether any mention of “a depression following Hoovers tax hike” leaves you with anything remotely resembling credibility.
As to the 1960s… you are aware that the “Kennedy tax cuts” came in 1964 – after JFK diedd – and yet the growth rates in real GDP per capita during JFK’s term far exceeded those under Reagan. The recession following LBJ’s tax hikes is technically true but misleading. But its also true that the economy, which had slowed down in 1967 (growth figures from: http://www.bea.gov/national/xls/gdpchg.xls), picked up in 1968, the year the taxes were raised (tax dates in one of the posts I linked to). The recession came in December of 1969, well into the new higher tax regime. You neglect to mention that something important happened in between… the arrival of a new President whose goal was to take apart the policies that had produced the fastest eight years of consecutive growth in the period from when FDR died to today.
And that only takes us to 1969. I’m sorry, but I’m too tired to go on.
Cardiff,
I’m sorry if I was un-necessarily harsh. Its been a very long day. But I get very frustrated covering the same things over and over. And clearly you have at least looked at the data.
So I really have to ask… why would you state something like “We a had a depression following Hoovers tax hike”? That, more than the other errors, really bothers me. After all, if you looked at the data, you have to know that that statement amounts to writing: “the Great Depression that began in August 1929 was caused by an increase in the top marginal rate from 24% to 25% that occurred in 1930.” Or maybe you meant the tax hikes that would come a couple years later? Seriously, what am I supposed to make of this? Why put something like this up?