« A new Amazon Kindle | Main | So that's why they do that »
February 9, 2009
Comparative misery suggests a mild recession
Cafe Hayek (How Bad Is this Economic Downturn?) pointed me to an Op-Ed by Alan Reynolds (IT'S A RECESSION NOT A 'CATASTROPHE') that tries to calm the panic over the current recession.
I enjoyed the essay and I share the concern that undue panic is encouraging bad policy making.
One of the measures that Reynolds cites as evidence that we are not in a catastrophe is the so called misery index, which adds the sum of inflation and unemployment together to try to measure how unhappy we all are.
I took NBER recession dates and The US Misery Index January 1948 to December 2008 to look at the misery over past recessions. I calculated the average misery rate for the period that I had data for (9.42%) and then generated an excess misery statistic, which is that month's misery index less the average misery. Then for each NBER recession, I added up the excess misery of all months in the recession. That generated the following table.
Recession Cumulative Average Start Excess Excess Dates Misery Misery 1948-11 -45.56 -3.80 1953-07 -47.00 -4.27 1957-08 -5.15 -0.57 1960-04 -22.99 -2.09 1969-12 14.85 1.24 1973-11 124.61 7.33 1980-01 82.23 11.75 1981-07 123.65 7.27 1990-07 21.61 2.40 2001-03 -16.64 -1.85 2007-12 1.83 0.14
As we can see, the current recession actually has small excess misery. The average not including the current recession is 22.96% cumulative excess misery and 1.74% average excess misery per month during those recessions. By either standard the current recession is thus far mild. If the inflation and unemployment numbers remain comparable, we'd need almost 14 years more recession for this one to be as miserable as the average American recession.
That said, the average US recession has only been about 12 months in length, and most forecasters believe this will last out all of 2009, so we are already shaping up for a recession that is longer than any in the sample. Also, the chart shows a lot of variability in these measures across recessions. Especially in the early recessions the misery index seems a poor guide to a recession. This may be a legacy of going on and off the gold standard, but that's just speculation.
If (and that's a big if) the misery index is a good measure of recession severity, then as Reynolds suggests, this recession appears to be a very mild by the standards of the last 50 years. Of course, this could be the recession that is so demonstrably horrible that the cumulative misery index is buried as an irrelevant severity measure. Time will tell.
Posted by OneEyedMan at February 9, 2009 10:24 AM
Comments
Post a comment
Thanks for signing in, . Now you can comment. (sign out)
(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)