Matt Yglesias just posted two charts showing the drop, and recovery, of real GDP during both the Great Depression and our recent recession. Matt’s intent, and conclusion, seem to be that the Depression was worse than the current recession because the Depression likely lasted longer. So, don’t be so blue.
I think there are a few problems with this. First here’s Matt’s charts.
|Click image for larger version|
Now some analysis.
1. Who’s to say our recession won’t last as long?
Yes, we did pretty well on the rebound from ’09 to late ’10, but now things seem to be flattening out, just as Krugman and Stiglitz predicted they would (in a decade of malaise). We still haven’t completely dug ourselves out of the recession hole, GDP wise, and if the economy continues to limp at 0.4%, or even 1-point-something, that’s not going to going to grow us out of this mess for a long time. And, if we have a double dip recession, then this mess carries forward for even more years. The expectation from the economist we trust (Stiglitz, Krugman) is that we’re stuck. And I suspect if you ask regular Americans how they’d feel if the current situations continues another several years, they won’t be pleased.
2. There are a number of factors that might even make the “recovery” less recovered some time soon.
Let’s start with the unemployment benefits extension and the payroll tax holiday. JP Morgan Chase is saying that if they expire next year, as planned, that combined with the cuts already in the debt ceiling deal we may be looking at a 1.5% point hit to GDP (the President, oddly, in today’s remarks referred to a 0.5% hit to GDP – but I think he’s low-balling “just in case” he caves and we don’t get them extended). Considering GDP only grew 0.4% and 1.3% in the last two quarters, a 1.5% point drop would send us into negative territory if next year is as bad as this, and there’s little reason to think it will be much better.
And if Congress magically decides to continue the payroll tax holiday and the UE benefits, just you wait, the Republicans are going to consider that “an Obama win,” so they’ll ask for further budget cuts to pay for those policies, and the Dems will probably oblige by further cutting spending, which will further cut growth so that we can extend two policies that help growth.
Then there’s that Super Congress coming to you this fall. Either they, or the trigger, will cut more money from the economy, making things even worse in the years to come. Still thinking things suck less than in the 1930s?
3. Why does it matter if the Great Depression was worse?
It gives me no solace that my grandfather, 80 years ago, had it worse off than I have it right now. Things kind of suck right now for me and my family, and I suspect yours isn’t doing much better. I don’t think anyone wants to hear that this is actually relatively “good,” what we’re living through right now.
Matt makes one final point that seems a bit odd:
]T]here’s precious little evidence that FDR’s recovery policies were any more effective than Obama’s were. “Things were getting worse at a terrifying rapid pace and would have gotten much worse had I not intervened” is a lame campaign message, but it’s a pretty impressive achievement. I wish more had been done, but the reality is that there are no historical examples I can think of that feature a large economy in a comparable hole doing better.
I’m reading multiple contradictory messages here. A) FDR wasn’t any more effective than Obama at growing the economy after the Depression, so, I guess, we shouldn’t expect Obama to be any better when we’ve had 80 years to learn and our recession isn’t as big as theirs was? But B), Matt also says that Obama helped make things less bad, and that’s true, we know from CBO that the stimulus worked, it just wasn’t big enough. Finally, C) Matt concludes by suggesting that there’s little more Obama could have done to make things better, while he says in the same sentence that he wishes more had been done, which is contradictory, and contradicts point A, above.
The stimulus worked. It wasn’t big enough, and everyone knew it, but for some reason the President didn’t want to even try for a bigger one (or even admit publicly that we needed a bigger one but the Rs wouldn’t let us have it, if in fact that was the case, and it wasn’t, because he didn’t even try for the larger one, and didn’t try hard enough on the one we got), which he could have done by flying to Maine, for example, and talking to Mainers about how Senators Snowe and Collins were blocking legislation needed to keep us out of a Depression. Mind you, at that time the President had a 70% approval rating, had just won a massive mandate in the 2008 election, and the GOP was in ruin (and not well liked at all). The President had a real shot at using his bully pulpit and telling the country, honestly, what was needed in the stimulus. But the President doesn’t name names, and more generally doesn’t like fighting for things, so he didn’t, and the stimulus was too small, and the economy is in worse shape as a result.
So yes, the President gets credit for keeping us out of a Depression, and he also gets credit for the current malaise that’s resulted from a too small stimulus and…
Stiglitz and Krugman would slap me upside the head if I didn’t mention that there was another problem here. The stimulus was generally intended to be palliative – meaning, it was intended to fill the hole in the GOP while we waited for the recovery to then take over. But the only way we were going to have a real recovery any time soon was by really addressing the problems we have on Wall Street and with, for example, home mortgages. But the President didn’t do that. So the economy never got fixed. And now it’s lame.
Still, a larger stimulus would have helped, and he didn’t even try for it.
That’s why I’m depressed about the recession. Because my financial situation, and that of my family, isn’t great. And a lot of people out there are in the same boat. So when we see that our politicians did have options, and that they didn’t pursue those options because it might have made them look mean, we’re just not sure how to take that. The President’s proclivity for caving in the face of opposition to his political right has taken a very real bite out of all of our wallets. It’s no longer an esoteric discussion for presidential historians. It’s real. And we have the right to be not just depressed about it, but mad as hell.