This Time Really Is Different
by Cheval John
With the presidential election right around the corner, the main concern is the economy.
Some say that we are at a recovery while others believe that it will get worse.
Voters are wondering if we will ever see America return back to it’s “glory days.
To understand where we are today, we have to understand the past and that is where guest writer, Dr. Brian Domitrovic comes in.
He has written a book called “Econoclast, The Rebels Who Sparked The Supply-Side Revolution And Restored America’s Prosperity,” which deals with the ecomonic recovery during the Reagan Administration.
He has made appearances on radio nationally on shows like the Lars Larson Show and Voices of America and television appearances on various shows like Lou Dobbs Tonight and The Kudlow Report.
He is an Associate Professor of History at Sam Houston State University and currently serves as the Chair of the Department.
Now without further delay, here is Dr. Domitrovic:
We never seen a recovery from a recession this poor since the Great Depression.
There is some competition, and it comes from the stagflation era of the early 1980s.
The general rule is that a deep recession brings a sharper recovery, and the reason is simple mathematics.
Growth rates are calculated in the following manner: new GDP is divided by previous GDP (Gross Domestic Product), and the steeper the recession, the lower that denominator.
The lower the denominator, the greater will be a growth rate with any given numerator.
In the Depression, growth was very sharp out of the 1933 trough (40% for four years), but it still gave way to a nasty recession in 1937-38 that took unemployment to 17%.
This is the benchmark for failed recoveries: a resort to 17% unemployment.
In 1980, there was a recession, a mild one, and the recovery was meek, at 2.5% in 1981, and this gave way to another recession where unemployment just about hit 11%.
But then growth caught fire, 17% over the next three years, and 3.5% per year after that.
Today, the recovery from our Great Recession, in the aftermath of which there was 10% unemployment, has been at best on 1981 standards.
We used to recover from deep recessions with 17% growth for three years as the recovery.
Now we plod along at 1-2% per year out of a very deep swoon.
The only time we’ve done worse in the modern era is the 1930s.