The Corner

How ‘Great’ a Great Recession?

Yesterday, the National Bureau of Economic Research’s Business Cycle Date Committee officially declared that the Great Recession ended in June 2009. This announcement should prompt some long-overdue skepticism, even criticism, of the Obama administration’s politically manipulative claim that this recession was the greatest economic downturn since the Great Depression.

While steep, the Great Recession has much more in common with the previous two steep recessions than with the Great Depression. Indeed, the NBER made the following very telling factual observation in its announcement: “The trough marks the end of the recession that began in December 2007 and the beginning of an expansion. The recession lasted 18 months, which makes it the longest of any recession since World War II. Previously the longest postwar recessions were those of 1973–75 and 1981–82, both of which lasted 16 months.” In short, the so-called “great” recession was just two months longer than these two previous episodes. Hardly the decade-long debacle of the Great Depression or the 43-month contraction that began in 1929 that triggered the episode.

This is more than a semantic distinction. The Obama administration has been using the comparison to the Great Depression to justify all manner of increased government spending under the claim that, like the Great Depression, the economic problem facing the nation is really a lack of spending — a fall in aggregate demand. So consumption spending, particularly government spending, is justified to increase demand and restore growth.

In truth, the Great Recession is best viewed as a significant realignment of supply and demand more similar to the 1973–75 recession (triggered by changes in energy prices) and the 1981–82 recession (triggered by consumer and business price distortions from inflation and high interest rates, and challenges to global manufacturing competitiveness). The challenge for the U.S. economy, then and now, is to bring supply and demand back into sync, a fundamental role only truly private markets can play efficiently and effectively. To the extent the White House continues to play the aggregate-demand shell game, where dollars are just redistributed from the private sector to the public sector, the U.S. economy is likely to continue in its purple funk and limp further into an economic Lost Decade, now one year in the making.

Samuel R. Staley is Robert W. Galvin fellow and director of urban and land use policy at the Reason Foundation.

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