Monday, March 30, 2009

What a depression might look like

From the WSJ via Yahoo.

What would a depression be like today?
"There is no consensus definition for 'depression.' Harvard University economist Robert Barro defines it as a decline in per-person economic output or consumption of more than 10%, and puts the odds of a depression at about 20%.
This 20% number is much higher than some other economists are predicting. For instance:

"Paul Kasriel of Northern Trust put the odds of a depression at just 1% because of the aggressive lending by the Federal Reserve and the fiscal stimulus just beginning to hit the economy. "There are just too many powerful countercyclical policies in place that will prevent the worst-case scenario," he says.

But still, what if it did happen. What would it be like?

It would not be as bad as the 1930s. Why? For one thing we have more "safety nets" and for another point we are starting at a much higher level.
"There were no unemployment insurance, no food stamps, none of the automatic things that maintain some income for people who are out of work," says former Massachusetts Institute of Technology economist Robert Solow....
and later:
"...spending on food accounting for a little less than a tenth of a typical family's disposable income today, compared with a little less than a quarter in 1930, a modern depression wouldn't hit people in the stomach as the Great Depression did."
If anyone knows of an "Alternative History" piece on this, if could be really interesting!

1 comment:

Vancouver Real Estate said...

I think the US is very very far from the 1930's depression. The situation back then was 10 times worse and I'm pretty sure it will never get there today. GDP was down by over 40% and todays values are somewhere around 5%. The comparison with the Great Depression has been used a lot lately, but not correctly.

Take care, Jay