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Slow growth history lesson

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Steve Chiotakis: The economy slowed to a crawl with the Commerce Department report this morning that said the nation’s gross domestic product was up in the second quarter — but only by a meager 1.3 percent. That’s much lower than expected, and economists say much less than it would take to reduce unemployment. Today’s report also shows something else that’s pretty dispiriting. The recession took a bigger bite out of growth than we thought. From late 2007 to 2009 — when the U.S. was officially in a recession, the economy shrank 5.1 percent. More than a percent higher than earlier reported. Which could very well explain why it’s taking so long to recover.

John Steele Gordon is an economic historian and he’s with us now to talk about it. Good morning, sir.

John Steele Gordon: Good morning.

Chiotakis: Now this recession, we lost like — what — more than five percent of growth. Put that into context for us.

Gordon: Well, that’s the biggest it has been in any recession since the Second World War, but far smaller than it was in the great depression. The 1929 GDP was around $ 100 billion. By 1953 it was down to $55 billion.

Chiotakis: That’s — let’s see if I can do my math — that’s 45 percent.

Gordon: Something like that.

Chiotakis: Wow. So how does that number fit into other recessions that we’ve seen? Forget about the depression we judge others by, what about other recessions?

Gordon: Well, since the Second World War, a post-war recession, that was around 12 percent. In the early 90s it was around 1.4 percent and in the early 2000s it was down to all-mighty 0.3 percent — it was barely noticeable.

Chiotakis: And if we’re looking at say how other recessions ended, how do we compare this one?

Gordon: Well, there are those who say the recession hasn’t really ended. It’s ended in the economic sense, in that we are now growing again, we’re not contracting, but most people look out the window and say you know, only an economist could be so silly as to say we’re not in a recession. The typical pattern is the steeper the recession, the steeper the recovery. You tend to get a v-shaped valley, whereas a recession that sort of bumps slowly downward, then the recovery tends to bump slowly upward, in other words you get a u-shaped valley. At the moment, though, we had a steep recession — very steep — and yet the recovery has been very sluggish.

Chiotakis: And the take-away from all this?

Gordon: Economies do not like uncertainty. Markets hate uncertainty. When they don’t know what the news is going to be, people are unwilling to invest. What we have right now is a great deal of uncertainty as to what is going to happen in Washington, what is going to happen over the next year and a half, and who’s going to win the next election. That makes for a lot of uncertainty.

Chiotakis: John Steele Gordon, economic historian

Gordon: Thank you.

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