Friday, January 11, 2013

Some statistics for the policy wonks

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.


buddeshepherd said...

As a farmer I can tell you a couple things. Prices for feed grains are at an all time high. The price of hay is at an all time high. There are worries about the price of fuel and fertilizer increasing.
Now, all this could change in the blink of an eye in todays world. But, that high priced feed is still in the system. It has to be absorbed somewhere.
In years gone by a change in the hay price of $5 per ton was pretty typical. This year the price of feed straw increased by $100 per ton and hay by $50. I would expect those prices to fall by next fall, but sill remain fairly high.
Now, tell me why that price has not shown up in the grocery stores? Or perhaps, tell me why that price will not show up in the grocery store?

Hyphenated American said...

I think the prices at the grocery had gone up quite a lot in the last few years. And I expect them to continue to rise. I think the main drivers are - burning food for energy (so-called green fuel) and Obama aversion to any attempt to use US oil and gas.

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