Financial Crises Recoveries: The Good-Bad-Mixed News

Recessions induced by financial crises historically last longer and often are deeper in their adverse effects on the economy. Given this fact Lehner examines how the U.S. financially induced recession compares with other recessions in the U.S. and other countries. His findings can be organized in “good-bad-mixed news,” kind of, as you will see.

I. Bad News: The Depth of the 2007 U.S. Financially Induced Recession is Associated with Very Deep Employment Losses
US recession employment loss

There’s no way around it. The Great Recession had and is still havving a devastating effect on people’s lives.

II. Good-Bad-Mixed News: It’s Bad but Compared with the ‘Big Five’ Financial Crises It could have been Worse

However, in the context of the Big 5 financial crises (Spain, Norway, Finland, Sweden and Japan), “the current U.S. cycle suddenly does not look quite as dire. Notice how the x-axis, how long it takes to return to peak levels of employment, is measured in years(!) not months like the first graph.”

Financial crisis employment loss
“This is likely due to the coordinated global response to the immediate crises in late 2008 and early 2009. While the initial path of both the global and U.S. economies in 2008 and 2009 effectively matched the early years of the Great Depression – or worse – the strong policy response employed by nearly all major economies – both monetary and fiscal – helped stop the economic free fall.”

III. Again,Good-Bad-Mixed News: Unemployment has been High, but in Comparison to the Big Five It could have been Worse

“Finally, the last graph is a new one and compares unemployment rates across these same crises. While the current U.S. cycle rate effectively doubled from 4.5% to 10.0%, many other crises’ gains were even larger. In fact, the percentage increase, as opposed to percentage point increase, in the unemployment rate for all crises except Japan were larger than the U.S. Great Recession. Even Norway’s unemployment rate which topped out at just over 6% represented a near tripling of the pre-crisis rate of 2.1%. Note that the unemployment rate peak used here is the 12 month average preceding each crisis.”

Financial crisis unemployment rate

Note the 1929 recession trend line (dotted line).


What can one say? It could have been worse doesn’t provide any comfort for the millions of people hurt and still hurting from the Great Recession. The worst post-WWII recession, arguably a self-inflected wound, has destabilized the lives of millions and no relative comparisons can provide any salve on those adverse outcomes.

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