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The great economist John Kenneth Galbraith famously said that "the only function of economic forecasting is to make astrology look respectable.
So no one really knows what will happen to the economy in six months or a year -- least of all, me. But we do know what has happened over the past year or so. That knowledge is important to gaining a reasonable sense of what the immediate future might hold and to shape public policies.
For many months, we were treated to almost daily gloom and doom and talk of another Great Depression -- with even the President talking of "catastrophe" (fortunately, he's wised up and cut it out). That's why I've tried on several occasions to highlight the facts about the current recession and how it compares to past economic cycles -- here, here, here and here.
The line graphs reproduced above (from TIME magazine) are the latest and one of the best comparisons. The top graph shows job losses over time in six recessions since 1974, compared to the Great Depression (the Depression line is more choppy because the unemployment data then was not seasonally adjusted). As you can see, it's no comparison at all. We are 14 months into the current recession (the light blue line) and we are on a track similar to the 1981 recession but hugely different from the Depression. The second graph zooms in on the first 14 months of the current recession and the Great Depression. Again, the difference is dramatic.
The next time you hear any politician or pundit summon up the specter of another Great Depression, just be skeptical. As I posted before, there is no question that we're in a very bad spot -- the worst in a generation and terrible if you're one of the millions who has lost your job. But we've been here before -- most recently in 1981 -- and recovered very nicely.
What's your take on this? Post a comment.