Richard Florida
by Richard Florida
Fri Feb 13th 2009 at 8:00am UTC

How Far Down?

Image from Justin Fox. It’s bad already. My guess isĀ it will overshoot ‘81 by a considerable margin, especially taking into account Carmen Reinhart and Ken Rogoff’s research which finds that unemployment rises, on average, by seven percentage points over four years in the wake of serious financial crises.

Your thoughts?

27 Responses to “How Far Down?”

  1. Dave Reid Says:

    This is a very helpful graph, as it gives us perspective as to where were have been and where were are currently. The good news is times have been bad before and have gotten better. The bad, we’re not at the bottom yet.

  2. Michael Wells Says:

    Is it significant that except for Carter in 1980, recessions always happen under Republican presidents?

  3. Adam Caplan Says:

    It looks as though more shallow losses take greater time to recover, while steeper losses early on contribute to quicker gains on the upswing… or am I reading this wrong?

  4. Swordsman Says:


    Yes, of course it is.

    The chairman of the fed under FDR, Truman, and Ike stated that the underlying main cause of the Great Depression was concentration of wealth – that the poor and the middle class turned to borrowing to stay in the game, and then finally imploded.

    Gosh, I wonder why that sounds familiar…

  5. Jim H Says:

    swordsman, wells:

    Let’s give credit where credit where is due, this recession belongs to Greenspan. By taking interest rates way too low in the early part of this decade (trying to avoid a deeper recession), he is responsible for this credit crisis. Had he held his ground we would have taken our medicine, and not be in the mess we are now.

  6. Dimitry Says:

    This recession is logical development of consumer society based civilization. Ever expending consumption needs ever expending markets. First, great empires of past were the answer with government sponsored projects and technological achievements , directly connected with construction, transportation and , above all, military development. Creative class used to serve the power elite ( Business, religious, military) . Artisans and artists were dependents on payroll of Medichi, dojes of Venice , French and other courts. Great Leonardo didn’t work for common good – he was a servant. Popular art was much less elaborate. later, protestant merchants went to acquire new markets and chip sources of raw materials, fueling investment in ship building, banking and finance.
    Wars were part of development. But, in last quarter of XX th century , we started to run out of markets- thus China, India an former USSR were brought to the altar of Mammon. Too bad it was done faster ( we like everything fast and have ADD- infected society) than required for normal development. So , house of cards is falling apart now. The Big question is ,as usual, “What to do ?” Consumerism is not an answer, but instead the Beast of old style imperial order , like Phoenix from ashes arises. You will need total control- very easy to achieve , government control of flow of funds- done, complacent majority- Oh, yeah !! What is new- no significant dissent to be squashed, look around- where is the opposition ? Some wackos on the fringes of society ? IMO, this time it is for real.

  7. Dimitry Says:

    Greenspun took interest rates down in reaction for declining markets. Money started to flow to bonds as safe investment, thus lowering yield.

  8. Michael Wells Says:

    I wonder why Greenspan performed so well between 1993 and 2000? He served under four presidents (1987-2006), and that was his only really good run.

  9. Nikolai Kondratieff Says:

    There is no question about it, this will make ‘81 look like a day at the beach. Historians will judge Greenspan to be the handmaiden of this great unraveling of the American economy. Obama, unfortunately has selected a team that is as bad–perhaps worse–as Greenspan. The hubris and arrogance of the Greenspan/Rubin doctrine–that markets will self regulate because participants are rationally acting, profit maximizers combined with a dogmatic repulsion to any type of requlation–has gotten us into an inexorable downward spiral. We CANNOT recover from a debt service load that is 30X the country’s GDP–especially when this borrow and spend has permeated every single aspect of society at all institutional levels–without a massive reset.

    Though I find some of his assertions a bit fast and loose, and I don’t concur with all of his conclusions, take a look at James Quinn’s missive on Seeking Alpha about the law of unintended consequences.

    You will see this is not just because we gave mortgages too many people who couldn’t afford them and packaged them up into complex and arcane collateralized debt obligations without any regard for leverage or underlying assets. No that’s just one of the straws that broke the camels back.

    This mess is far from over. I only hope we get leadership that understands History and we take this opportunity to reset our society and do some good.


  10. Jim H Says:

    Michael who said Greenspan EVER performed well?

    It’s disappointing to see the obama administration make all the wrong moves, but you can’t surprised that his cabinet picks are awful, considering the “buddies” he picked in the past: Ayers, Wright, so forth. The company you keep speaks volumes.

    Conveniently scrubbed from the history books is the depression of 1920, in favor of the liberal king FDR. And we know he didn’t do squat to speed up the recovery, see:
    Needless to say the lesson of 1920 is for government to stay out of the way, and yes, the economy will rebound without the need to add your social engineering failures

  11. Swordsman Says:

    True, it’s Greenspan’s crisis, but let’s put the blame where it belongs: on his ideology, not the man himself. All sorts of people were content to lap up Mr. Greenspan’s objectivist philosophy, and like many philosophies it looked great on paper, not so much when put into practice.

    Greenspan’s great decade between 1993 and 2000 was marked by the dot com boom and bust. Since Greenspan never believed in restraining any markets, he gave us FOUR (count them: dot com, oil, housing, financials) bubbles, all of which burst, sooner or later.

    Although Greenspan was the archpriest of libertarian economics, the problem really got going with the election of Ronald Reagan. While Reagan’s policies were not in effect really objectivist (Reagan cut taxes by about 1-2% in reality after you sift through the rhetoric and spent money like a drunken sailor so his policies were almost Keynesian) or monetarist, if you prefer, his rhetoric definitely was.

    Later Republicans, conservatives, and moderates (attention: Bill Clinton, Larry Summers, and Robert Rubin) learned the WRONG lessons from the 1981-1983 Reagan recovery because they believed the spin instead of actually looking at the crisis and the data.

    Reagan ostensibly cut the top tax rate from 70% to 39%. So these folks said, “ah-hah, if we give massive tax cuts to the rich, the economy will improve”, except that Reagan didn’t cut the ACTUAL tax rate, he only cut the MARGINAL tax rate. In fact, no one ever paid 70% of anything thanks to deductions and so forth.

    Reagan talked constantly about smaller government and described smaller increases in spending as “cuts” so these same folks said “ah-hah, if we cut spending and try to balance the budget, the economy will improve”, except that isn’t at all what happened.

    Reagan’s rhetoric was all hawk: “Mr. Gorbachev, tear down this wall!” and calling the Soviet Union the empire of evil, and his successors said “ah-hah, we need to be ultra-warhawks, and all will be well.” But Reagan in fact was almost dove-like in a lot of cases, negotiating with Gorbachev, pulling out of Beirut, and so forth.

    Despite Reagan’s image, the man was actually far more complex than any conservative wants to admit these days, and when the neoconservatives and George W. Bush tried to actually turn Reagan’s rhetoric into reality, they were confused that reality refused to comply with fantasy. Reagan didn’t massively cut taxes on the wealthy. The conservatives recently did and then were shocked that government revenue actually went DOWN, the rich got richer, and no one else did. Reagan wasn’t 100% hawk, but his successors were, and are now nonplussed that their attempts at liberating Afghanistan and Iraq (and their inability to start a war with Iran) have come undone. Reagan never tried to cut government by much, but his successors thought that was a nifty idea, and have no idea why welfare reform, opposing S-CHIP, and attempts to privatize social security make no logical sense at all.

  12. Swordsman Says:

    Jim, you need to actually look at facts regarding the New Deal and not debunked garbage from UCLA nerds.

  13. hayden fisher Says:

    Too much politik-ing here, CNBC’s documentary “house of cards” is the best I’ve seen yet describing the crisis, it airs again tomorrow night for those that didn’t catch it. Bottom line, there’s lots of blame to go around and certainly no person or party is completely insulated or responsible.

    Adam, great point. Let’s take a moment to celebrate a system that’s flexible enough to correct quickly if painfully. The silver lining will be a wave of soaring entrepreneurship and increased productivity as security in jobs and retirement accounts vanishes, literally, overnight. Desperation, if nothing else, will force those who have dreamed about starting a new business but never followed-through to go and pursue their ideas. Indeed, with nothing else to lose, even the craziest of ideas will be pursed, some of which will inevitably be grand slams.

    There are lots of signs of recovery, especially in emerging markets like Brazil and China which are on a tear. Could this be the end of US dominance? Possibly, but not probably. More likely, the emerging markets will become the destination markets in the short term as the American consumers and companies work through hard times. But the US is resilient, flexible and diversified and it will not be down for long.

    The real loser will be western Europe. Its inability to eliminate jobs and businesses due to entrenched socialism will lead to an inability to adapt quickly, if painfully. Where we have a cliff and an increasingly strong safety net, many of these countries have high-rise floors and are too inflexible to adapt. A secondary loser will be all of the one-dimensional oil-producing countries as it seems inevitable that oil will not recover before new technologies and strategies come to market to ensure the end of their 30 year run on the world.

  14. Swordsman Says:

    I actually do see a lot of parallels with the 1980-1982 dip. A spike in gas prices, a spike in inflation, and manufacturing downturn starts the recession.

    I do think Hayden is right on some things. I think western Europe is more flexible than he thinks, at least northern western Europe. Italy and France have pretty hardcore labor practices. I also am concerned that like in 1980 that Houston and the petroleum sector will be unfazed by the recession only to plunge into a prolonged and painful recession after everyone else has recovered. Houston actually was in a recession from about 1984 to 1990 when the rest of the country was doing quite well.

  15. Swordsman Says:

    Here’s William Polley’s graph of all postwar recessions, as published on Andrew Sullivan’s Atlantic blog:×422.jpg

  16. exe Says:

    This forecast from Gerald Celente is shocking:

  17. hayden fisher Says:

    I agree with Swordsman on northern western Europe although I would expect the US to recover before Europe generally; but China and Brazil to lead the pack. China is the new economic world leader in the short-term although I would expect the US to be the most dominant longer-term; politically, this will make it even harder to push them on environmental issues.

  18. Swordsman Says:

    Look, it’s nowhere near a depression, just to clarify. The Great Depression we lost 25% of jobs in THREE YEARS. The worst recession since then was probably 1980 and we lost a little over 5% in a year. Right now, we’ve lost about 2.75% in a little over a year. I’m not saying it won’t get worse before it gets better, but the 1929-1933 period superimposed on any of these graphs would relegate all subsequent recessions to a small upper left corner of the graph.

  19. Jim H Says:

    swordsman, so you resort to calling names (nerds) when you are losing an argument?
    Credibility gone…..

  20. Dimitry Says:

    Unemployment in US almost doubled in few month. Still, retail didn’t shed as much jobs as it should. Long way to go yet. We not near the Depression and already many people all over the world are experiencing it. Swordfish, are you well set for hard times ahead ? What is your field of business or occupation?

  21. Swordsman Says:

    Jim, I’m not the one propunding theories that are debunked. You would do well to not talk about OTHER people’s credibility, sir.

  22. Swordsman Says:

    Dimitry, I’m far from immune, but I am thankfully not in retail.

  23. hayden fisher Says:

    Great point above Swordsman on Reagan! He was never a ‘conservative’, much more of a maverick who marched to the beat of his own drummer and pushed hard rhetoric in order to achieve targeted compromises; but he got away with it because he harbored true passion about his causes. But, in the end, Reagan is best viewed as a pragmatist. He argued for small government but greatly expanded it in order to meet the crises he faced. He argued for less spending but ushered-in massive defense spending, very Keynesian as noted, + tax cuts = the Reagan economic boom. Ran-up short-term deficits but launched an economy that, once healthy, resulted in a surplus after moderate tax hikes. The policies of the ’80’s led to the prosperity of the ’90’s. But then came the bubbles.

    It’s hard to argue that there’s not a positive to the housing bubble. The banks holding the paper worldwide are in trouble. On the ground, however, we have lots of renovated urban homes and town center exurb models. Suburbia is the loser of course. But, bottom line, there are tangible hard assets in the wake of this boom that are now available at lower prices to the next generation of first-time home buyers. Bad for the holders of the paper associated with those properties. Great for the new buyers. Domestically, this is really a transfer of wealth from the boomers to the Y generation principally. The boomers’ homes are devalued, their jobs are being cut and cannot be replaced and their retirement accounts are wiped-out. For younger workers, when the economy upswings, there will be less middle and senior employees in their way; a shorter ladder for them to climb. They can buy their houses and cars cheaper, with excess inventory of both in the market. And they can take advantage of all kinds of stimulative programs, tax cuts and credits and other stimulative incentives. There will be lots of new companies formed and the opportunity for these young workers to get in on the ground floor of tomorrow’s fortune 500 companies. In any event, it will be interesting to see how this plays-out.

  24. Swordsman Says:

    I note that real estate prices have declined over 50% in California’s Inland Empire exurbs. Ouch.

    Phoenix has experienced a 32% drop, Las Vegas 31%, San Francisco 30%.

    And yet Dallas is 3% and Denver is 4%. Manhattan is only down 7%, and Houston down 10%, IIRC.

    And I bet most of the decline in Dallas, Denver, and Houston are in exurbia and suburbia…

    Clearly, the market is re-setting itself after a bubble that caused California, Nevada, Florida, and Arizona real estate to be horrendously overvalued.

    It’s worth noting the housing decline is not following recession figures at all. San Jose is not in recession, but housing values are tanking. New York has lost more jobs than any other city, but housing values there ARE tanking.

  25. Swordsman Says:

    Did anyone catch conservative Senator Lindsey Graham of South Carolina argue in favor of nationalizing banks over the weekend? Clearly, the definition of “conservative” is changing quite rapidly.

  26. Michael Wells Says:


    I wouldn’t cry too much for the Boomers lost wealth. My house is worth only three times what I paid, rather than four. My portfolio has fallen back to where it was five years ago. Both of these are crises only if I want to sell soon. I was going to keep working anyway, the idea of golf bores me to tears. I may work differently, more for income and less writing, but it’s not the end of the world. May keep things interesting.

    Of course I’m healthy and I live in Portland. If I were sick in Miami it might be different. But most people aren’t sick and aren’t in Miami.

  27. Swordsman Says:

    Glad I’m not the only one that thinks golf is a “good walk spoiled”.