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Thursday, January 26, 2012

A little perspective...

            Below is a graph showing US GDP per capita, from 1800 to the present. 

(Note: you can see an animated/interactive version of this graph here.  Use the "Play" button or the time slider to view the growth over time.  Also, in the bottom right of the graph, you'll see an arrow pointing NW.  Click on that to get the zoom in/zoom out options.)

            The GDP figure has been adjusted for inflation.  Also, it's scaled to "per capita" amounts to account for population growth over the past 200 years.  (If a country's economy only grows at the same rate (or slower) than its population does, there's no real growth.  Its just maintaining the status quo (or falling behind it).  So we need to control for the population to get a gauge of actual economic growth.)

            In taking a cursory look, we see a pretty strong overall trend for economic growth over the course of our history.  That's good.

            But if you look closely at the graph, you'll see that while the overall trend is ever upwards, in any given shorter period, there's quite a bit of up and down.

            For example, what do you think is going on here?

            Notice the years?  That dive is the stock market crash of 1929, and the Great Depression that followed it. 
            So where's our recession?  The financial crisis that began in 2006, and the recession that started soon after?  How do our current woes stack up in the historical context?

            Let's zoom in a bit...notice that the graph image below is the same size as the one above, however it's showing the past 50 years, not the past 200. 

            See that little dip there?  That's our financial crisis and recession.

            By contrast, here's Great Depression when viewed at the same scale:

            Kinda puts things in perspective, right?

            Most of us are really only aware of two economic crises in our national history: the Great Depression, and the current recession.  And if you just learn those two, that's enough to get you through most US history classes you'll ever have to take in school.

            But look at the years even before the Depression.  See how rocky and erratic our development was?

            In fact, as we look further and further into our nation's past, back into the days where bank runs were common, prices unstable, and there were no Reserve banks, our economic situation gets increasingly tumultuous. 

            Recessions of similar - or greater - magnitudes and durations as the current one occurred frequently throughout the US's early history!  Our economy was so fragile, it could even be thrown into an absolute tailspin by crises in other countries!  Somehow, I feel like that fact was either left out of my high school social studies curriculum, or just didn't get emphasized enough to stick.

            Keep in mind, these are just the crashes that were large enough to affect the economy on a national scale.  Smaller recessions and panics with regional affects only do not appear on this graph. 

            NOW...please don't read me backwards here.  I'm not trying to marginalize this current recession, or imply that recessions are "business as usual." 

            My point is this: of the many things this recession has been touted as, not many people have touted it as an opportunity to learn a little something about the lives of our ancestors.  We learn so much about the political and social climates of the past.  But very little about its economic climate.  Here's our chance... 

            Just as today's economic crisis is shaping the course of current events, the economic crises of the past have had huge effects on the trajectory of our nation's history.  But I feel that they usually take a backseat to political and social factors when we talk and learn about "what made America America."

            We all know it: the last few years have been absolutely lousy.  People lost their jobs or their homes.  Retirements plans were scrapped.  Credit markets dried up.  Good projects and investments never got off the ground.  A good chunk of people my age have had their career plans thrown seriously out of whack, and many of their career tracks will be a few years behind for the rest of their lives.  It has sucked.

            Now image having to relive this crisis several times over during your lifetime.

            I hope that when you reflect on how challenging today's economy is, you take a sec to think about our ancestors, who lived through recessions like this one virtually every decade.  Picture the effect that would have on a nation's people, history, even its culture. 

            Try to picture a reality where every dozen years, as far back as you could remember, whole pockets of the population would lose major factors of their livelihood almost overnight.  Their jobs, their home, their savings, their businesses, any or all of it.  Poof, gone.  No warning, no real clear explanation, no obvious responsible party.  And imagine knowing all the while that you could be next. 

            Sounds tough, right?  Well, your great-great-grandparents grew up in that reality.

            And imagine how that reality would affect the people who lived through it.  How it would shape their attitudes, actions and values.  

            Try to picture yourself living in that world.  Would you trust your savings to a bank - or anyone else for that matter?  Would anyone trust you enough to lend to you?   Would you want to start a business?  Would you bother to go to school?  Would you plan in the long-term at all?  Would adolescents even think to dream about what they would be when they grew up?

            What would it be like to live in a world where skepticism of "promise for the future" was actually prudent?  Even pragmatic?

            Just as the current economic recession has played a driving role in today's politics, culture and society, the past's economy itself has certainly been wild enough to periodically steer the course of the US's development as a society. 

            I'll give you a personal example: In my family, we contribute many idiosyncrasies of our older relatives to the fact that "they grew up in the Depression."  That's why Grandma needs to see you eat.  That's why Grandpa worries so much about you finding a job.  "They grew up in the Depression."

            I'm sure some of you have observed this in your own families as well.  I doubt my grandparents were the only ones personally affected.  The Depression affected their entire generation!

            The large macroeconomic event of their childhood had an effect on who became as adults.  It shaped them as people.  It contributed to their beliefs and their politics.  Heck, right now we can see economic realities shaping culture in real time, especially in the case of Greece and Spain

            So next time your teacher waxes poetic about all the political, religious, cultural, social, scientific and technological events/conflicts that have had a hand in shaping the history of our country, keep in mind that there's likely several economic ones, just as important, being unduly left out.


  1. Remember the Panic of 1907? Or the Long Depression of the 1880s?

    Of course you don’t! Why would you? They probably get one paragraph in one textbook you had to read in 5th grade, and never again. The thing is, these economic crises were even worse than the one we saw in the last few years.

    I know it seems wild, what with how dominant economic and financial issues are in the news today, but I’m afraid it’s incredibly likely: your great-great-grandchildren won’t even be taught about “the Recession of 2006” when they go to school. History will have forgotten it by then.

  2. This is great stuff, Dan!

    The short memory span for history just follows from the same weakness of humanity that has come up AGAIN and AGAIN in your posts: the general lack of ability when it comes to conceptualizing large numbers that are beyond those dealt with on a personal level. Humans can think of how big their living room is or how far they have to drive to get to work, but space is just too big to conceptualize. Its easy to understand what happened in the last decade, but 100 years ago, especially during some otherwise less than notable years? Even worse is to think of how long ago trilobites evolved relative to how long ago dinosaurs evolved. How about how much money was lost in the recession versus how much money the government owes versus how much money Bill Gates has? Most people probably think of all three numbers as "big" and that's it.

    Its like humans need constant landmarks on a linear scale, not a log scale, to really be able relate quantities in a sensible manner.

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