This post is the first of what I’m currently envisioning as a two-part series on economic downturns, generally, and the current economic downturn in particular. The other part will appear over at Outside the Beltway.
First, let’s put the current downturn into perspective. From the National Bureau of Economic Research, the organization that keeps track of such things, here are the lengths of the economic downturns the U. S. has undergone:
The present downturn, which started in December 2007, is already longer than any post-war recession but the recession of the early 1970’s and the recession of the early 1980’s.
One style of economic downturn is one precipitated by some sort of shock. The downturn that followed the attacks on September 11, 2001 was what’s sometimes characterized as a V-shaped recession:
short and sharp and, at the end of which, the economy bounces back and continues to grow. The current downturn probably isn’t a V-shaped one. For one thing, it’s gone on too long.
Another sort is what’s called a U-shaped recession:
This sort of recession starts with a shock, too, usually an economic shock, e.g. failure of a company, a steep drop in the stock market. In a U-shaped recession the downturn usually isn’t quite as sharp as in the V, it stays down longer, and takes longer to come back up. Nouriel Roubini has suggested that the current turndown is a U-shaped one:
My view is closer to a U-shaped recession as I expect that the economic contraction will last at least 12 months and possibly as long as 18 months through the middle of 2009. This view is based on the fact that the last two recessions – in 1990-91 and 2001 – lasted 8 months each and today the macro and financial conditions are worse – relative to those two previous recessions – in at least three dimensions
Another sort of downturn is the L-shaped:
An L-shaped downturn is precipitated by an economic shock, the economy goes down sharply, and stays down for a protracted period. Japan’s economic downturn that began in 1989 and, basically, has stayed down was an L-shaped downturn.
What concerns me about the present downturn is that people are still talking about things getting back to normal as though the steady, sizeable economic growth that we saw back in the 1990’s were what’s normal for our economy. What if things are more like this:
Note that the segment inside the red circle is the same as the L-shaped segment. It’s the spike that’s abnormal not the new normal.
The next segment in this series will be about Japan’s economic turndown.