Sunday, March 22, 2009

Yesterday . . . and Today

Yesterday, all my troubles seemed so far away
Now it looks as though they're here to stay
Oh, I believe in yesterday.

Suddenly, I'm not half the man I used to be
There's a shadow hanging over me
Oh, yesterday came suddenly.


This post is about two yesterdays, the one we enjoyed 2 years ago and that left suddenly, pre-economic downturn; and the one America did not enjoy in the 1930s.

Dr. Paul Krugman had a brief blog on the current economic banana as compared with the Great D.  Considering that the major forward-looking indicators of economic activity predict much worse to come (and then currently predict several months of scraping along the bottom), the argument that what we are experiencing is not a milder version of the Great Depression may be very optimistic.

As Krugman explains at the bottom, to find the percentage decline in manufacturing for each downturn, multiply by 100 (12% decline for now vs. 27% then).  

Two more quick points.  One:  Our economy is less oriented to manufacturing now.  The current massive declines in exports of manufactured goods out of Asia demonstrate that the U. S. decline would have been much worse now had we not outsourced so much manufacturing.
Two:  There was a major  spurt in manufacturing in the 1920s, similar to that of the 1990s. Manufacturing and "non-house" consumption growth from 2002-7 were not at boom levels, thus a smaller fall-off in percentage terms would get to the same "baseline" or below trend levels. 

Here's the entirety of the Krugman posting from March 20:

The Great Recession versus the Great Depression

Reading this article about the global manufacturing plunge, I wondered: how does the current slump stack up against the early stages of the Great Depression? The US has consistent industrial production data back to 1919, so it’s a fairly straightforward exercise. Below is the change in industrial production, measured in logs, from the previous peak in 1929-30 and 2007-9.


At first, the current recession didn’t hit industrial production all that hard. But the pace accelerated dramatically last fall, so that at this point we’re sort of experiencing half a Great Depression. That’s pretty bad.

Clarification: Those are natural logs — sorry, economists use them so frequently I forgot to explain. So basically multiply by 100 to get the percent change.

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