May 20, 2011--Recessions, Depressions, & Panics

On the day before the END is supposed to happen, I received an email from a friend who is worried about a different kind of end--the end of our economy as we know it. He has been passing along articles that decry the fact the our Fed has been printing money and how that is making the current economic situation worse.

I try to encourage him to check American economic history and after doing that we can talk. He accuses me a being "academic," which I suppose he means is a lower life form. I tell him if he means that I try to know my history, I take the jibe as a compliment.

On Monday I will attempt to deal with monetary policy, but first a little background--

Economic crises are sadly nothing new. And all of the worst of them occurred during the 19th, not the 20th or 21st centuries. In fact, though our Great Depression of 1929-1937 was indeed Great, it was far from our worst. Business activity dropped by a horrendous 27% but during the 19th century alone there were at least five instances of decline that were even steeper.

And, in all cases we recovered, often helped by activist monetary policy. More about that next week. Here, though, is a quick list of the economic crises we faced and from which we recovered:

Year. . . . . . . . . .Duration. . . . .Business Activity

1836. . . . . . . . . . 2 years. . . . .. .-33%
1839-43. . . . . . . 4 year. . . . . . . -34%
1845-46. . . . . . . 1 year. . . . . . . -6%
1847-48. . . . . . . 1 year. . . . . . .-20%
1853-54. . . . . . . 1 year. . . . . . .-18%
Panic of 1857. . . .1 1/2 years. . .-23%
1860-61. . . . . . . 8 mos. . . . . . .-15%
1865-67. . . . . . .2 1/2 years. . . -24%
1869-70. . . . . . .1 1/2 years. . . -10%
Panic of 1873. . . 5 1/2 years. . . .-34%
1882-85. . . . . . . .3 years. . . . . .-25%
1887-88. . . . . . . .1 year. . . . . . .-8%
1890-91. . . . . . . .10 mos. . . . . .-12%
Panic of 1892. . . 1 1/2 years. . . .-30%
Panic of 1896. . . 1 1/2 years. . . .-21%
1889-90. . . . . . .1 1/2 years. . . .-9%
1902-04. . . . . . . . 2 years. . . . . -17%
Panic of 1907. . . . .1 year. . . . . . .-31%
Panic of 1910-11. . 2 years. . . . . -11%
Recession 1913-14. . 2 years. . . .-20%

After that there were 14 recessions until the Great Depression, which lasted from 1929-32 and saw a decline in business activity of 27%.

Thereafter, there were 13 more recessions, all of them of relatively short duration where business declines averaged about 2%. And, as mentioned about, the current Great Recession which began in 2007 and was technically over more than a year ago saw a decline in business activity of "only" 4.1%.

One thing characterizing the 20th-21st century recessions after the Great Depression has been aggressive monetary activity by the Fed.

I'm sorry, Harvey, but these are all historical facts passed along from an academic friend.