It is often proclaimed that it normally takes very long time for the economy to recover after a financial crisis. During one of the on-line arguments, I was once challenged to compare the recovery after 2008 crisis with the recoveries from similar financial crises in the past. My opponent offered me a list of recessions – and I arbitrarily chose to analyze the crisis of 1907 (I confess my laziness to check the other ones).
But before wasting a lot of numbers, here is the background for the 1907 recession. According to wikipedia:
The Panic of 1907, also known as the 1907 Bankers’ Panic or Knickerbocker Crisis, was a financial crisis that occurred in the United States when the New York Stock Exchange fell almost 50% from its peak the previous year. Panic occurred, as this was during a time of economic recession, and there were numerous runs on banks and trust companies. The 1907 panic eventually spread throughout the nation when many state and local banks and businesses entered bankruptcy. Primary causes of the run include a retraction of market liquidity by a number of New York City banks and a loss of confidence among depositors, exacerbated by unregulated side bets at bucket shops. The panic was triggered by the failed attempt in October 1907 to corner the market on stock of the United Copper Company. When this bid failed, banks that had lent money to the cornering scheme suffered runs that later spread to affiliated banks and trusts, leading a week later to the downfall of the Knickerbocker Trust Company—New York City’s third-largest trust. The collapse of the Knickerbocker spread fear throughout the city’s trusts as regional banks withdrew reserves from New York City banks. Panic extended across the nation as vast numbers of people withdrew deposits from their regional banks.
Lets examine the aftermath of the 1907 crisis and how quickly economy recovered under the unobstructed free market economy – and then compare with the recovery under president Obama and welfare socialism.
From 1907 to 1912, the real GDP grew from 801 billion dollars to 857 billion dollars (all are in 2008 dollars). The real growth of the economy was 7% , five years after the start of the financial crisis. The data was downloaded from the website “Many Eyes“.
In 2007, the US GDP was 14,071 billion dollars (in 2007 dollars) according to the website Infoplease. In 2012, the US GDP is expected to be 15,903 billion dollars (in 2012 dollars) according to website Forecasts. When I add the 11% total inflation from 2007 to 2012 (inflation calculator is here), the 2007 GDP in 2012 dollars becomes 15,619 billion dollars. This means that the real GDP growth from 2007 to 2012 was only 1.8%.
In short, the US economy recovered much faster from the 1907 financial crisis than from the 2008 financial crisis. After 5 years, the US economy grew by 7% and 1.8% respectively (1907-1912 and 2007-2012).
Please keep these numbers handy when someone tells you that Obama’s recovery is not unusually slow.