Comparing Recent Economic Conditions to Those of the Great Depression Seem Kind of Silly

The chart below shows annual real GDP growth (BEA data here) from: 1) 1930 to 1932 (-25.7% cumulative decline) and 2) 2007 to 2010, assuming: a) fourth quarter growth this year of 3.5% and no revisions to the Q3 estimate of 3.5%, and b) real GDP growth next year of 2.5% (WSJ consensus forecast).

Under those fairly realistic assumptions there would be a decline in real GDP over the “Great Recession” in only one year (2008), preceded by one year of below average growth of 0.40% (2007), and followed by a return to average growth of 2.8% in the next year (2010). This of course also assumes no “double dip recession” next year.

But assuming the assumptions above hold, wouldn’t the endless comparisons of recent economic conditions to the conditions of the Great Depression seem kind of silly? After all, the three annual consecutive declines in real GDP growth of -8.62% in 1930, -6.50% in 1931 and -13.1% in 1932 were far, far worse than a single one-year decline in real economic output of -2.4% in 2009.

Update: Just to be really optimistic for a change, if Brian Wesbury is right and Q3 real GDP is later revised up to 4% (from 3.5%), and if Scott Grannis is correct that today’s ISM rebound results in Q4 real GDP being as high as 5%, the annual decline for 2009 real GDP would be -2.25% instead of -2.4% as shown in the graph.

About Mark J. Perry 262 Articles

Affiliation: University of Michigan

Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan.

He holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University in Washington, D.C. and an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota.

Since 1997, Professor Perry has been a member of the Board of Scholars for the Mackinac Center for Public Policy, a nonpartisan research and public policy institute in Michigan.

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