The Economist catches us up on the history of the Great Recession. First, the history people remember.
ON DECEMBER 16th, 2008, President-Elect Barack Obama met in Chicago with key members of his economic team to discuss their response to the deteriorating economic situation. Just two weeks earlier, the Bureau of Labour Statistics reported that 533,000 jobs had been lost in November, after a decline of 302,000 in October. According to the latest output figures, the economy had contracted by 0.5% in the third quarter, and much worse was expected of the fourth….
in the fourth quarter of 2008, GDP contracted at a 3.8% annual pace—the worst quarterly performance since the deep recession of 1982. More bad news hit on February 6th, when the BLS released new labour market figures. It reported an employment decline of 598,000 in January, following on revised drops in employment of 577,000 in December and 597,000 in November—a three-month drop of 1.8m jobs.
Unfortunately, things were worse than was realized.
Unfortunately, the situation was far more dire than anyone in the administration or in Congress supposed.
Output in the third and fourth quarters fell by 3.7% and 8.9%, respectively, not at 0.5% and 3.8% as believed at the time. Employment was also falling much faster than estimated. Some 820,000 jobs were lost in January, rather than the 598,000 then reported. In the three months prior to the passage of stimulus, the economy cut loose 2.2m workers, not 1.8m. In January, total employment was already 1m workers below the level shown in the official data.
Marc Schulman notes that BEA numbers showed that conditions had deteriorated more than thought in 2008.
The decline in output during the intense period of financial crisis was significantly more severe than economists had thought. In 2008, the economy shrank 0.3%, rather than holding flat, as earlier estimated. In 2009, the economy shrank 3.5%, worse than the earlier 2.6% projection. During the ugliest months of the crisis, in the fourth quarter of 2008 and the first quarter of 2009, output declined at a shocking 8.9% and 6.7% annual pace, respectively.
This makes sense. Credit markets had frozen. TED spreads broke the Black Monday record of 1987. We really were in free fall. We were fortunate that the administration was as aggressive as it was.
“We really were in free fall. We were fortunate that the administration was as aggressive as it was.”
We are fortunate that Hyphenated American (i.e., me) predicted in 2008 that Obama-Reid-Pelosi would fail to get the country out of economic trouble. And yes, I also predicted that stimulus would have a short-term effect, and we will see a double-dip recession.
BTW, speaking administration being aggressive – can you tell me which measures from January 2009 to August 2011 can be considered pro-jobs measures? Which ones had a chance of generating millions of jobs by end of 2011?
I don’t think we are going to come out of this recession at all, in the near term. This is the final crisis of capitalism, and there will be no escaping from it. The only way we can get out of this downward spiral is by ending the late-capitalist economic system, and replacing it with something more just, more moral, and more responsible.
Marx called this one over 150 years ago (and for that matter, St. John called it almost twenty centuries ago), and they were right. What we are seeing nopw is the beginning of the end for American late capitalism. As our English friends like to say, good riddance to bad rubbish.
The only way we can get out of this downward spiral is by ending the late-capitalist economic system, and replacing it with something more just, more moral, and more responsible.
I rather like Nancy Pelosi’s idea – she says for every dollar of unemployment paid out, there is a $2 return to the economy – based on her logic, we should all quit our jobs and draw unemployment from the government – then the economy would double while we all danced in the streets – would THAT be just, moral and responsible? ROFL