Your Lying Eyes

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14 November 2008

How Bad a Hangover?

How bad is the hangover we're going to experience from our mini-growth binge the last 4 years? You know, the binge that was almost entirely financed by people taking out loans they couldn't afford? Steve Sailer is suggesting (not entirely seriously) that if the current crisis wiped out 30% of our wealth, that suggests our real income should be only 90% of what it is today - meaning, about 3 years of 3% negative growth. That surely would be the worst economic slump since the Great Depression.

How bad have our other post-war retrenchments been? Looking at all the 3-year periods of quarterly GDP growth since 1947 (based on simple arithmetic averages), the worst period was the one ending in the 4th quarter 1982. This was the stagflation-induced recession that began in Carter's last year and ended in Reagan's 2nd year. That was a helluva recession, but total growth over that period was flat - not negative, certainly not 10% negative! The next worse 3-year periods after that (and not including any of the other 11 quarters in that period) were the three years ending 2Q 1958 (0.69% average growth), 2Q 2003 (1.23%), 2Q 1976 (1.43%) and 4Q 1991 (1.48%). So, such a slowdown - or reversal, actually - would be unimaginable for pretty much all of us.

On the other hand, what would a 10% reduction in income really imply? Having only a little better standard of living as, say, Switzerland, rather than a lot higher (see here)? Not exactly bread lines and soup kitchens for all.


Blogger Black Sea said...

I graduated from college in the early 80s. The main thing I remember about that time is seniors camping out in front of the job placement office in order to sign up for interviews with recruiters visiting campus. There was probably a certain element of youthful theater to it, but people really were worried that they wouldn't get an interview, much less a job, and this was at an engineering school.

I took the coward's way out (grad school).

November 15, 2008 1:59 AM  

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