The recession that began in December 2007 ranks as the worst since World War II. It carved a huge slice out of Americans’ financial wealth and caused the biggest percentage decline in employment of the post-war era. Even though the stock market rebounded in 2009 and U.S. output began to grow in the second half of that year, the recession continues to take a terrible toll on the incomes and psychological health of many families.
No one should confuse the recent recession with the Great Depression, however. Two
key features of that depression made it “Great”—its severity and its duration. Between
1929 and 1933, real GDP in the United States fell almost 27 percent. U.S. GDP did not
return to its 1929 level until 1936. Real personal consumption declined more than 18
percent. In 1933, about one out of every four Americans in the labor force was jobless.
The National Bureau of Economic Research (NBER), which is in the business of dating
recessions, estimates that after reaching a cyclical peak in August 1929, the U.S. economy
shrank for the next 43 months, by far the longest period of uninterrupted economic
decline in the twentieth century. In the 10 downturns since World War II, excluding the
most recent one, the average recession lasted just 10 months. Even the longest post-war
recessions, in 1973–1975 and 1981–1982, lasted only 16 months.
As of this writing, NBER has dated the onset of the recession (December 2007) but
has not yet determined its end date. The recession will not last 43 months, however.
The economy began to grow again in the summer of 2009, and the unemployment rate
started to decline late in the same year, less than 24 months after the recession began.
Real GDP probably fell less than 5 percent from its previous peak. The number of private
payroll jobs began to increase in the first quarter of 2010. The peak unemployment
rate will almost certainly be less than 10.5 percent, far below the peak unemployment
rate attained in the 1930s and somewhat below the peak unemployment rate hit during
the 1981–1982 recession.
The tea leaves are clear: The Great Recession will not be a second Great Depression.
And, as I argue below, President Obama’s stimulus package, though imperfect,
deserves a great deal of credit for bringing us back to the positive trajectory we’re on
today. Any reasonable grader of the stimulus’s effects on driving recovery and combating joblessness would give the stimulus at least a B+. In the
pages that follow, I first outline the size and contours of the government’s
response to the recession, paying specific attention
to how this response does and does not differ from government
policy in recessions past. I distinguish between standard and
nonstandard responses, that is, policies typical of those in other
post-war recessions and those that are unusual. Then I consider
the success of the policies and the public’s surprisingly hostile
reaction to them. Voters’ sour views on the stimulus make it
unlikely Congress will extend or expand the program, even if the
economy takes a turn for the worse.
This article appeared in the Summer 2010 issue of Pathways Magazine.