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Quarterly Update: The Recession in Historical Context: Paul Swartz
Quarterly Update: The Recession in Historical Context: Paul Swartz
June 5, 2009
Paul Swartz
Analyst, International Economics
pswartz@cfr.org
How does the current economic and financial downturn match up to past contractions? This chart book provides a
series of answers, plotting current indicators (in red) against the average of all post–World War II recessions (blue).
To facilitate comparison, the data are centered on the beginning of the recession (marked by “0”). The dotted lines
represent the most severe and the mildest experiences in past cycles. Because the current downturn is frequently
compared to the Great Depression, the appendix plots the current recession against the 1930s.
Leo Tolstoy famously said, “Happy families are all alike. Every unhappy family is unhappy in its own way.” So it is
with downturns. Unlike most postwar recessions, this one stemmed from an asset market correction that destroyed
savings and froze the credit system. The result has been more severe than a typical recession, as these charts show.
Appendix: The Current Recession Compared to Prewar Average and the Great Depression
The economic cycle framework can be used to compare the current downturn to prewar recessions and the Great
Depression. The thick red line represents the current recession; the thin blue line, the postwar average; the thick
green line, the Great Depression; the thin orange line, the prewar average.
Remember these are not projections but simply an attempt to present the current economic environment in
historical context.
• Due to financial system
deleveraging, the
economy is enduring
uncomfortably low
inflation.
• The current recession
looks more like a prewar
recession than a postwar
recession or the Great
Depression.
• Production in this
cycle has collapsed
relative to the postwar
average, but is in line
with the prewar
average.
• The current collapse
does not compare to
that of the Great
Depression.
• Government
intervention is much
less controversial than
prior to World War II.
Thus government
stimulus occurred
faster than was the
case during the Great
Depression.
• Government net
financial investment
(bank bailouts) has
contributed a
substantial portion of
expenditures.