Posts like this one at VoxEU, from Barry Eichengren and Kevin O’Rourke, make me feel less of perma bear and more of an objective observer who happens to have been commenting when there was little reason to be of good cheer, as far as my skepticism of the “green shoots-recovery in 3Q-4Q 2008” theory is concerned. This is a follow up to an April post by the two economists,
No country (at least based on reports I have seen) has ever recovered from a severe financial crisis as quickly as a 3Q-4Q timetable would suggest. And the speedy recoveries generally featured having banks take writedowns and restructuring/writing off the underlying bad debt, plus seriously devaluing the currency at a time of better (as in not awful) global growth. In other words, being able to pull the economy up via much stronger exports played a big role. And those countries still had nasty downturns, but also solid rebounds.
Our policy responses may not be as bad as those of the Great Depression, but they are a long way away from best practices. So I have had trouble seeing why we should expect better outcomes. Both the Depression and the Japan bust featured a period after the initial shock where things seemed to be stabilizing, and then the decay resumed.
Even by my sometimes dystopian standards, this post is sobering. It has a ton of charts, most of which show world performance indicators on an even steeper trajectory downward than in the Depression. Welcome to a tightly coupled world.
From VoxEU (hat tip DoctoRx):
This is an update of the authors’ 6 April 2009 column comparing today’s global crisis to the Great Depression. World industrial production, trade, and stock markets are diving faster now than during 1929-30. Fortunately, the policy response to date is much better. The update shows that 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.
World industrial production continues to track closely the 1930s fall, with no clear signs of ‘green shoots’.
World stock markets have rebounded a bit since March, and world trade has stabilised, but these are still following paths far below the ones they followed in the Great Depression.
There are new charts for individual nations’ industrial output. The big-4 EU nations divide north-south; today’s German and British industrial output are closely tracking their rate of fall in the 1930s, while Italy and France are doing much worse.
The North Americans (US & 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.
Japan’s industrial output in February was 25 percentage points lower than at the equivalent stage in the Great Depression. There was however a sharp rebound in March.
….To sum up, globally we are tracking or doing even worse than the Great Depression, whether the metric is industrial production, exports or equity valuations. Focusing on the US causes one to minimise this alarming fact. The “Great Recession” label may turn out to be too optimistic. This is a Depression-sized event.
That said, we are only one year into the current crisis, whereas after 1929 the world economy continued to shrink for three successive years. What matters now is that policy makers arrest the decline. We therefore turn to the policy response….
This is a must read. The post continues here.