Archive for November 13th, 2008

Depression Until 2017…At Least?

Sharon November 13th, 2008

If you ask an economist or market expert how long the current economic crisis is likely to last, they’ll tell you that the average recession lasts between 8 and 16 months.  Sounds pretty reasonable, right?  Using that estimate, we’ll be doing fine in two years.  They then mutter something sotto voce about the fact that this will probably be a longer than usual, perhaps into 2010, but that they expect growth reasonably soon. And perhaps by a purely technical definition they will be right.

But it is worth talking about those numbers.  The first point worth noting is that the Great Depression isn’t actually factored into the “average recession” – they count since WWII.  The official reason of course, is that most economists imagine that they understand the prior crisis, and that it can’t happen again.  And maybe that’s true, but if you did take all the economic crises of the 20th century, you’d see that the average recession/depression lasted a good bit longer.

Now recessions are officially two quarters of negative growth. That’s why I prefer to talk about “economic crises” or a “Depression” because technically, we haven’t even had that yet.  We’re in the worst economic crisis since 1929, and we’re not in an official recession.  But, of course, for all non-economists, the recession started either last fall or winter, with the housing bust and the wild rise in prices for basic needs.  That is, real people have been living in the early stages of an economic crisis for a good while.

The other point is that it isn’t just the Great Depression that lasted a long time for all intents and purposes – if, instead of counting negative growth quarters, you actually look at the experience of living in the 1970s, you’d find that the economic crisis of the 1970s lasted, well, pretty much from 1973 to 1982.  Technically those years include two formal ”recessions” - 1973-4 and 1980-82, but the reality was rather different.  In fact, despite the fact that we were officially “out” of the recession by 1975, unemployment spiked up to 9% in that year, then gradually subsided a bit.  Meanwhile, the recession was followed by years of rapid inflation, rising to 13.5 percent by 1980.  For the most part, unemployment remained high (and remember, we did less statistical fudging then), while the experience of ordinary people remained purse pinching, tight energy supplies and real economic struggles that got mildly better from 1976-1978, but never improved very dramatically, and then were followed by a further unemployment spike to above 10%, until 1982.

Ignoring the technical definitions, the recession of the 1970s lasted not-quite 10 years.  The Great Depression, which also had its fits and starts, rising and lowering unemployment and brief periods of comparative improvement and then further decline, lasted, it is generally agreed, from late 1929 to early 1941 – over 10 years.  Now I realize that this is unconventional accounting, but given that most accounts of our economy understate the reality,   I think there’s a reasonable case for saying that twice during the last century we’ve had extended economic crises that lasted around a decade. 

Is this sufficient evidence to say that the current crisis will eat up a whole ten years?   No, it isn’t.  But it is, I think, worth asking the important question – what will get us out of this particular crisis – that is, what would actually lead us to believe that we’ll start growing again in a matter of months to a year or so?

At the root of our growth in both the early 1980s and during World War II was access to lots of cheap energy – it quite literally fuelled the economic growth that got us going again.  The long term prospects for cheap energy are not very good – despite the current price fall, we are almost certainly past our energy peak. Even the IEA, while explicitly repudiating peak oil, admits that without massive investment that will likely be difficult to fund at these prices and in this economy, we can expect a rapid decline in oil availability. A shift to renewables would be a way of hedging here, but that too requires large amounts of money and energy.  We are, at best, in a bind.  When we emerge into a new steady state, it isn’t clear what that state will look like. 

Am I claiming that we’ll be in an official recession for 10 years?  No, and I’d be shocked if we were.  Even if such a thing happened, I have faith in the willingness of the government to jigger the statistics.  I have no doubt that a combination of periodic minor improvements and the need to keep people believing will mean that we are, as French philosopher and critic Jacques Derrida would probably not quite put it, “always-already” out of our recession.  But that doesn’t change the fact that for those of us who see our reality not through the lens of questionable government statistics, but through our real pocketbooks, our grocery bills and our jobs, odds are, we’re in for a long, long haul, and a very changed world on the other end. I won’t be at all surprised if my sons, who at present play with legos and toy swords and are mostly learning to read and do arithmetic are studying calculus and taller than me (and I’m 6’0) by the time we emerge into some kind of economic stability.