Putting The Financial Crisis In Perspective: It's Tough To Keep Economic Growth Down

from the 140-year-view dept

If you're at all interested in economics in general, you should read David Warsh's Economic Principals column, which is always interesting (and you should absolutely read his fantastic book Knowlege and the Wealth of Nations, which is highly relevant to many of the discussions we have around here). Anyway, his latest column shows a nice little chart of per capita GDP in the US over the past 140 years or so, which effectively shows a pretty consistent upward trajectory, where even recessions and the Great Depression -- which is noticeable -- are hard pressed to stop the eventual economic growth. The message is pretty clear: it's hard to keep economic growth down. In the midst of a great contraction and massive deleveraging, that message seems to get lost pretty quickly -- but it's worth remembering.

Filed Under: economic growth, financial crisis


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  • icon
    ChurchHatesTucker (profile), 24 Dec 2008 @ 5:52pm

    Disclaimer

    Past performance is no guarantor of future results.

    reply to this | link to this | view in chronology ]

  • icon
    Charles (profile), 24 Dec 2008 @ 6:30pm

    GDP?

    Isn't GDP also grown from inflation? That almost never stops either.

    reply to this | link to this | view in chronology ]

  • identicon
    a different Jason, 25 Dec 2008 @ 7:24am

    This might be a difficult, but wouldn't it be interesting to measure world wide gross product per capita (adjusted for inflation) over the last 130 years.

    Have we progressed at all or just profited off other nations turmoil ?

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 25 Dec 2008 @ 12:18pm

    I went down the street to visit one of Mom old friends, Mrs Helen. She is 102.

    We started discussing economics and the great depression. She lived through it and is most discussed.

    Trying to reassure her I said that her stock would recover. Her stock has lost 50% of it value about $300,000.

    Her response was I will not see it. That she had worked all her life and managed to save a bit and for the second time Wall Street was stealing her hard work, not money, but work.

    Baffled I look at her with a questioning eye but did not say anything.

    She then up and says that the government was doing the same thing that the government, under Hoover, did in 1929 and that the incoming administration was going to be just like the Roosevelt one implying that recovery is at least 10 maybe 15 in the future and that she would not live to see it.

    What does one say? I of course could not disagree with her she had lived through the Great Depression. I had not. After all she is 102 and in good health.

    Which leads to the central economic question. What does one do with their wealth at 65 to make sure that they are able to live comfortable to 102 and still have their wealth?

    reply to this | link to this | view in chronology ]

    • identicon
      Xiera, 29 Dec 2008 @ 6:30am

      Re:

      Well, it's no secret that the stock market is a risk. It's also no secret that you should start moving to bonds as you approach retirement in order to mitigate that risk.

      reply to this | link to this | view in chronology ]

  • identicon
    gene_cavanaugh, 25 Dec 2008 @ 2:59pm

    Financial growth

    Everything either grows or dies, including financial systems. I think we focus FAR too much on "now", though ("go buy something, it supports the economy"). Short term thinking, as with the Reagan-Bush pseudo-economies, leads to long term problems.

    reply to this | link to this | view in chronology ]

  • icon
    TX CHL Instructor (profile), 25 Dec 2008 @ 3:07pm

    It's tough to keep economic growth down...

    It's tough to keep economic growth down...

    ...but I'm sure Barack Hussein Obama, the Chicago Machine Politician with the blank resume, can change that.
    --
    www.chl-tx.com

    reply to this | link to this | view in chronology ]

  • identicon
    Mark Regan, 26 Dec 2008 @ 1:23am

    I've Heard That Story Before

    I went back in my time machine to the days of the Roman Empire and found an Italian Economics Wizard named Davidus Warschi had made the same statistical claim to the Emperor and Senators.

    Then I traveled to the heyday of the United Kingdom, and found that an advisor to the King of England, Sir David Welsch of Oxford University's Macroeconomics Department had presented a similar statistical analysis.

    I think we are better off putting our faith in organized religion and prayer and throwing virgins into volcanoes than to put our trust in a statistical chart regarding an economic system that is built on a structure no more sound than a deck of cards.

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 31 Dec 2008 @ 1:24pm

      Re: I've Heard That Story Before

      So you're saying that because it's unwise to extrapolate from one data set to the whole world, that means any extrapolation at all must be wrong too?

      reply to this | link to this | view in chronology ]

  • identicon
    Twinrova, 26 Dec 2008 @ 4:07am

    Change has been needed for decades.

    "are hard pressed to stop the eventual economic growth."
    This comment is just common sense, but you'd never know it as the media continues adding fear to viewers with every new economic "update".

    In fact, in looking at economic growth history, we should expect to see a tremendous boost after this recession, as history has shown once the money starts flowing again.

    The issue for most businesses now is finding capital. Lenders are being stingy, so it's going to take a bit more time to find capital for startups.

    Of course, it doesn't help when the government is bailing out industries which should have died in order to "save the economy". I'm sure there were plenty of investors willing to take over the role of US auto manufacturer should the Big 3 have fallen, but now, we'll never know while we're still driving our pieces of crap.

    (Personal note: How the hell does GM expect the American people to take them seriously about better cars when their Volt is $40k? Americans who need this technology won't be able to afford it.)

    Most of you have known my motto over all this and I wish it had come true. Now, I'll just sit back and wait, as it's the only thing I, and many, can do.

    I'm more afraid of the future than I am of this recession. Especially when history also shows a trend of stupidity amongst Wall Street investors who continue to find that high yielding quick return of investment while the SEC does nothing while it happens.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 26 Dec 2008 @ 5:45am

    Why was Mrs. Helen, at the age of 102, invested in stocks?!?

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 26 Dec 2008 @ 6:20am

      Re:

      Sir.

      I am her neighbor not her financial adviser but from previous conversations she (1) enjoyed dabbling in stock from the time she was 60 or so until she was in her early 90,
      (2) she was quite good at it, (3) most of her stock holdings were in electrical power companies and oil companies bought at prices where she has at least a 100%, some times 500% current return on her investment and (4) she was living better off the dividends than she would have off bond interest.

      Her investment psychology which rivals Buffet although not nearly as profitable was why I went to see her and was not something I would question since she is sharper mentally than I am and I am quite normal with an IQ of 120, thank you.

      No what I got from the discussion revolves around the question of where dose one store financial wealth without considerable work as in property management or suffering the ravishing of inflation from the ownership of bonds and get a return on investment that one can live on for the long term say 40 years or so?

      Once in here life time money literally meant gold and silver. Now all it means is a number in a computer or a piece of paper at best with no intrinsic value. This is great in the aggregate for the short run, if by short one means 5 to 10 years or so , with proper control management but as in so many things involving economics when one moves to the micro and the long run meaning one’s life-time it is not so great as one is able to do highly profitable productive work in one’s middle age and has a high upkeep need in their old age. If paper money, and associated instruments, have a inflation induced declining value and one is not physical able to manage a business for continuous revolving wealth maintenance there are very limited opportunities for wealth preservation.

      One can thus conclude that as long as one has health physically and mental one can maintain wealth but with the loss of either one wealth deteriorate sharply and this does not even begin to account for increased personal cost due to medical needs.

      reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 26 Dec 2008 @ 6:23am

      Re:

      "Why was Mrs. Helen, at the age of 102, invested in stocks?!?"

      This is the saddest point of all and no one seems to make it. She obviously shouldnt have been in the stock market, I would also point out that much of her portfolio was inflated by a phony real-estate bubble, so much of what she lost was pretend anyway. People want say the stock market "stole" half thier money in the crash, but they never seem to realize that before the crash, half thier money was just "pretend".

      reply to this | link to this | view in chronology ]

  • identicon
    TDR, 26 Dec 2008 @ 6:30am

    That continual growth spoken about in the various models brought up depends on a near-infinite supply of oil, because oil = energy = money. However, the earth is not a bottomless well. Oil supplies are finite, and alternative energy sources don't produce near the amount of energy that the same amount of oil does. Plus, much of the technology and machinery to extract and collect alternative forms of energy itself relies on oil in order to operate. But when the energy collected is less than the energy used to collect it, it's an energy loss, not an energy gain.

    Oil production peaked in the 1970's and has been going down ever since. Natural gas is peaking now. A continual growth economy can't function without oil, which is not only a fuel source, but is also converted into plastics, microchips, and more. What we should have had is a steady-state economy free of the artificial ups and downs of the continual growth model. But if the peak oil models are true, then it's almost certainly too late or almost so, because as oil reserves run out and production falls, the economy falls with it. A certain amount of up and down fluctuation in oil prices is expected within those models, the wobbly plataeu that goes on for a little while before the final, irrevocable plunge.

    Without oil, we have no energy to create electricity, which means no refrigeration, no flushing toilets, no heaters, no air conditioning, no internet, no working technology at all. Without oil, the trucks will stop bringing food and products to the stores, which means no more food and clothing except what we already may have saved up. Most food we eat is made over a thousand miles from where we live, did you know that? What happens when that distribution network collapses because it no longer has the gas to power it? We starve, or at least a great many of us do. How well could you live off the grid, if you had to? We may need to figure that out sooner that we ever imagined. I hope not, but it's possible.

    reply to this | link to this | view in chronology ]

  • identicon
    Joe Smith, 26 Dec 2008 @ 10:38pm

    log scale and stupid policy

    That chart is in log scale so those little ripples around the trend line can be pretty traumatic for the people living through them.

    The 1930s tells us that bad government policy can turn an ordinary business cycle downturn into an economic disaster.

    The government is right to provide liquidity to the banking system but wrong to have done so without addressing the risks that the derivatives markets present to the financial system (an outright ban on CDSs would have been a good place to start.)

    On the other hand, the idea that government stimulus can take us back to the height of the bubble in stocks, bonds, housing, employment, income and consumption is just plain stupid.

    reply to this | link to this | view in chronology ]

  • identicon
    Alpha Computer, 27 Dec 2008 @ 1:30pm

    Good Times Coming

    Even though times look tough, opportunity is still present and we will rise again. There seems to be an expectancy in my area for growth. I am poised for a great year ahead and I am focused on this.

    If you have lost your job, it's hard to stay positive. I wish you all the best and hope this year brings good news for you. But I really believe that things will get better much sooner than many think. We have seen this before.

    reply to this | link to this | view in chronology ]

  • identicon
    Matt, 28 Dec 2008 @ 3:09pm

    If you actually look at the chart, it looks like GDP falls from 7000 to 4000 during the GD. And let's not forget the 25% unemployment at the time.

    reply to this | link to this | view in chronology ]

  • identicon
    Anon2, 29 Dec 2008 @ 12:45pm

    straw man

    Joe Smith, your last line is pure straw man -- I'm not sure anybody, here, in the media, in Congress or the incoming Obama administration, has said that any stimulus or other policies they might adopt is going to take us back to the height of the bubble. That would be preposterous. All they are hoping for is to slow the downward trajectory, soften the landing, and allow us to find a true bottom without too much disaster falling on too many people. It's going to take real economic growth -- based on real production, not financial nonsense -- to bring us out and back on the upward path again.

    reply to this | link to this | view in chronology ]

  • identicon
    jeff, 14 Jan 2009 @ 7:36am

    I have a very close friend, who graduated from Harvard. Worked for ML for over 8 years, recently he’s been “right sized” too, despite of his outstanding performance and the increasing revenue he generated. OMG, now the banking industry is badly hurt, how long it would take for those financial background guys like him get back to the job market. Banking jobs are not there as much as before as easily seen on http://www.joboutlets.com and other job sites in the region

    reply to this | link to this | view in chronology ]

  • identicon
    James giger, 21 Jan 2009 @ 4:53am

    financial crisis tips

    Learn how to beat the worldwide economic crisis at ForexFloor.com.

    reply to this | link to this | view in chronology ]

  • identicon
    Darren Teague, 21 Jan 2009 @ 10:32pm

    anon2 has it right

    America is an overweight, middle aged guy who has worked hard for a long time, but lost sight of some fundamentals for continued success: Consume less than you produce, save and don't be greedy in asking for a return on your money. Spend time with your family so you raise respectful children, and make decisions regarding you and everyone else with some spiritual influence based in love and kindness. When Americans can get off their lazy a$$e$ and get to work, we might have a chance. There isn't any one man, any magic pill, any governmental plan that will fix our problem. I'm 42, 20 pounds overweight, and I keep saying I'm going to get back in shape. The only way that happens is if I burn more than I eat. My challenge to anyone reading is to follow those simple rules above. Until we can produce at a higher rate than we use, we're all screwed.

    reply to this | link to this | view in chronology ]


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