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June 2024

What’s the right label for 2007-09 recession?

David Wessel discusses how to label the recent recession – In what sense, this was a GREAT Recession; and in what sense, it may not have been so different from other recessions, say the 1980-82 recession.

I think this recession ‘deserves’ to be called the Great Recession, or Great Develeraging, because of the following:

1. The first nationwide sharp housing price decline;

2. The Wall Street was totally reshaped: Bear Stearns, Lehman, Merrill and Wachovia were all gone, for example.

3. Worst labor market slump since the Great Depression in 1930s, and the employment will take long time to recover to the pre-crisis trend level;

4. Its contagion effect worldwide.

Federal Reserve Chairman Ben Bernanke calls it “the worst financial crisis in modern history.” His predecessor, Alan Greenspan, says it was “the most virulent global financial crisis ever.” The resulting recession was longer and deeper than any the U.S. has suffered since World War II.

But does it deserve the heavy mantle of “The Great Recession” that it seems to be acquiring? “Great” is a big word, a mark of enormous historical significance. World War I was the Great War until the second world war came along.

Herbert Hoover was an early adopter of “Great Depression,” using the phrase in 1931 because he thought it less alarming than “panic” or “crisis.” The Great Depression surely deserves the name. Industrial production fell 45% between 1929 and 1932. Unemployment went from 3% to 25%.

Economists often refer to the Great Inflation of the 1970s, the only time the U.S. saw sustained inflation above 5% in peacetime in the 20th century. For a time, they talked about the Great Moderation, the unusually calm economic seas that stretched from the mid-1980s to the early 2000s that some saw as a permanent change. Recent events suggest that it might be better described as the Great Mirage.

The recent recession began in December 2007 and probably ended in June or July 2009. (The end to recession isn’t the victorious end to a football game. The date marks only the moment where things stop getting worse.) It lasted about 18 months, longer than any post-war recession. Industrial production fell 16%, far more than any recession since the Depression. Payrolls fell 6%, unrivaled by recessions of the past half century. Unemployment went from 4.4% to 10.1%, an increase bigger than the five-percentage-point climb in the early 1980s—though the jobless rate didn’t hit the 10.8% peak hit in 1982.

“It’s pretty clear this is the most severe post-war recession,” says Mark Watson, a Princeton economist. But “greatness,” he adds, implies something more than “severe.”

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