Recession How bad is it?
I heard the R-Word one too many times. Everybody everywhere is talking about economy. So I decided to see it for myself. How severe is the situation compared with past? Is there any thing different about the current situation to make a fuss about?
Keeping up with standard economist practice, I decided to use GDP as proxy for economic health. I downloaded GDP data from Bureau of Economic Analysis Web site. Here is graph of change of GPD plotted over time.
As you can see in the graphs, till 1980s recessions were part and parcel of life. The GDP fluctuated drastically like a needle tracking a earth quack.
After mid 1980s, situation changed. Changes to GDP were comparatively stable - we do not see major ups and downs in graph. This era is referred as The Great Moderation. The economist boosted that since mid 1980s the variability declined by half. We thought the structural and policy changes made it possible to control economy. We thought we had figured out all the parameters needed to control healthy economy. We thought we never have to go through economical up-and-down cycles ever again. We were proven wrong.
2008 great recession caught everybody by surprise. No body predicted housing bubble and subprime mortgage crisis. Nobody saw it coming. It proved that we were living in wrong assumptions all along. We haven't figured out the perfect formula to control economical fluctuations. We are getting closer - but we not there yet.
How bad was recession compared with previous recessions? Look at the sharp drop in 2008 (Point J) - that's The Great Recession.
Is recession severe compared with data from last 50 years? Probably not. We have seen worst.
Is is bad compared with data from last 20 years? Most certainly.
Keeping up with standard economist practice, I decided to use GDP as proxy for economic health. I downloaded GDP data from Bureau of Economic Analysis Web site. Here is graph of change of GPD plotted over time.
As you can see in the graphs, till 1980s recessions were part and parcel of life. The GDP fluctuated drastically like a needle tracking a earth quack.
After mid 1980s, situation changed. Changes to GDP were comparatively stable - we do not see major ups and downs in graph. This era is referred as The Great Moderation. The economist boosted that since mid 1980s the variability declined by half. We thought the structural and policy changes made it possible to control economy. We thought we had figured out all the parameters needed to control healthy economy. We thought we never have to go through economical up-and-down cycles ever again. We were proven wrong.
2008 great recession caught everybody by surprise. No body predicted housing bubble and subprime mortgage crisis. Nobody saw it coming. It proved that we were living in wrong assumptions all along. We haven't figured out the perfect formula to control economical fluctuations. We are getting closer - but we not there yet.
How bad was recession compared with previous recessions? Look at the sharp drop in 2008 (Point J) - that's The Great Recession.
Is recession severe compared with data from last 50 years? Probably not. We have seen worst.
Is is bad compared with data from last 20 years? Most certainly.
Comments