Recessions have been around for centuries

By DAVID MOON, Moon Capital Management, LLC
March 29, 2009


Until the onset of our current economic malaise, it’s been easy to forget that recessions do happen. We had a small one in 2001, but unless you were in a technology field and lost your job, you may not have noticed it.

Most news commentators refer to our current economy as a recession. Some erroneously call it the worst economy since the Great Depression. A few have gone off the deep end and declared it an outright depression.

I prefer the term “repression.”

The folks at the National Bureau of Economic Research (NBER) actually get to declare these things. They are in charge of measuring the GDP and keeping track of when the economy is growing or shrinking.

Older information isn’t as precise as the measurements they are able to observe today, but it is pretty interesting.

The Panic of 1797 lasted almost three years. It centered in the commercial real estate market, but had its roots in the late 18th century deflation in Great Britain.

Only 10 years later, our struggling new republic suffered its second recession. This one, termed the Depression of 1807, is thought to have resulted from Thomas Jefferson’s Embargo Act of 1807. An unintended consequence of this well-meaning legislation was that it almost completely destroyed the U.S. shipping industry.

Reports about the Panic of 1819 read somewhat like today’s newspapers. There were widespread home foreclosures, failing banks and high unemployment rates.

Another panic ensued in 1837, as banks stopped redeeming all currency presentations in gold and silver. This prompted a confidence crisis, mostly with concerns about the safety of the paper currency system.

Economic data becomes more precise around 1850. Since then, we’ve had a total of 33 economic cycles, each containing both a recession and an expansion. That averages to a recession about every four and a half years.

The 159 years since 1850, can be divided into three almost equal periods. In the first 53 years there were 12 recessions, one of which lasted 65 months. Including that whopper, the average recession lasted 19 months.

The next 53-year period (1903-1956) includes the Great Depression, a recession that lasted 43 months. The 12 recessions during this period averaged 16 months.

In the almost 53 years since 1956, we’ve only had nine recessions, with an average length of only 10 months. Next month we will enter the 16th month of the current repression, which will make it the longest economic contraction of this 53-year period.

Compared to the whoppers in the 1870s and 1930s, this one has been fairly brief so far.

Interestingly, as far back as the founding of the U.S., recessions have often included a strong international component. Interdependency of world economies is not a new phenomenon.

Recessions also seem to have gotten progressively shorter, while the expansion part of the business cycle seems to have become longer.

As recently as just a few years ago, some analysts suggested that, because of advanced U.S. government measurement and manipulation techniques, recessions were no longer a risk.

Sadly, they were mistaken.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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