Green chutes optimism is misplaced. The economic crisis continues to deepen at a pace that is on par with or worse than that of the Great Depression, according to an updated analysis by economists Barry Eichengreen and Kevin O’Rourke. They conclude that even though “trade and stock markets have shown some improvement without reversing the overall conclusion – today’s crisis is at least as bad as the Great Depression” (pointer via Mark Thoma).
Their first graph (below) tracks world industrial output leading them to conclude that: “World industrial production continues to track closely the 1930s fall, with no clear signs of ‘green shoots.”‘ They add that: “North Americans (U.S. & Canada) continue to see their industrial output fall approximately in line with what happened in the 1929 crisis, with no clear signs of a turn around.”
June 7th, 2009 at 6:16 pm
I think it is “green shoots,” like the garden.
The main differences this time are the tsunami of cash that governments around the world are pumping into the economy, and the good fortune of avoiding the imposition of protectionist measures or fiscal discipline by those same governments. All of these (including FDR’s attempt to balance the budget in 1936) were important contributors to the severity and length of the Great Depression.
Past performance is no guarantee of future results and I am not sure there is any reason to believe that it will be as bad as it was from 1929-1946 just because it was that bad from 1929-1946.
I don’t think the green shoots theory is unreasonable; we are seeing reductions in the rates of job loss (a lagging indicator), some improvements in credit markets and potentially a bottom in the worst US housing markets.
The first rays of sunrise don’t mean it’s not still dark outside — just perhaps the sectors where the recovery will begin.
June 8th, 2009 at 12:31 pm
I agree that many people’s outlook has probably swung too far into optimism. But I wonder about the chart of industrial output — according to your predictions, the world needs to rely less on durable goods production as the basis of the economy. Couldn’t the first graph miss indications of a broader recovery by failing to include much of the new, creative economy?
June 8th, 2009 at 11:12 pm
…it’s time to get out the pessimistic kool-aid punch bowl, the world economy is about to explode
…cheap labor, low interest rates, leaner businesses, higher worker productivity, more innovation and places/ways to innovate, low material costs, global markets, a finally shored-up finance system in the process of being renovated for future growth, etc.
…we’re about to usher in a new era of global capitalism