Robert Shiller: This Is No Average Recession

Since 1854, the average length of a U.S. recession has been 17 months from peak to trough, according to the National Bureau of Economic Research. That doesn't tell the whole story, however. Over those 15 decades, the shortest downturn lasted for seven months, while the longest, from October 1873 to March 1879, was 65 months long (the Great Depression actually came in second at 43 months).

Given what got us here this time around -- including the bursting of the biggest credit and real estate bubbles in history -- and the fact that many economic indicators were already in pretty poor shape before the bottom fell out, is it realistic to assume that the current downturn will just be "average" (i.e., last only four more months)?

I don't think so. And neither does Robert Shiller, the author or the prescient bestseller Irrational Exuberance, who explains his less-than-upbeat rationale in a British Times article entitled "Leading Economist Fears Decade of Weakness in US."

The collapse of the American property market helped to start the downturn

One of the world's leading economists has given warning that the United States is facing a decade of financial misery, with the number of unemployed Americans set to continue to rise for years.

Robert Shiller, Professor of Economics at Yale University, who predicted the end of the internet bubble seven years ago, said: “We could have many years of a very weak economy. Big recessions are followed by years of weakness and typically unemployment keeps rising.

“To say that this will last years is not a dramatic statement. What is happening now is much worse than 1990. We could be facing a decade of real weakness.

“This is no ordinary recession. There are signs that people see this as a different story. People are talking about a depression, something that we haven't seen previously.”

Comments

[Boubou:]

Eevryone needs to absorb this analysis and figure out what they need to do.

Jan 13 09:04 AM

[standfast77:]

Hey, Bou Bou, YOGI says BUY right here at the open.

Kid you not we're poised for a run up until mid March.

Jan 13 09:23 AM

[BHMTom:]

My excuse is i'm too lazy to use spell check.
Absorb the ods not become the librairian!
Its been tanking since Regan. Bush Clinton Bush again all inherited the most economisc stimulous in history of the modern man...since 1940's. Clinton/Reno sueing Microsoft was the turning point. Like letting your 16 year old drive your Ferrari. Giving loans to those that had no reason getting a loan. I feel sorry for Obama, but will enjoy from the side lines.
And ya just gotta love ole Greenspan with his, "Irrational Exuberance". Weeks befor that he stated that the Fed " does not make policy due to the conditions on wall street",,,,,Bull $hitt !!!! He poked a dern hole in it!
I'm out of debt! You?

Jan 13 12:27 PM

[carey_jim:]

I haven't looked closely at the 1873-79 depression but it too occurred during a period of huge technological advances.

The telephone, telegraph and even electric dynamo (generator) were discovered during that period and the railroad infrastructure was being constructed.

These changes caused a large movement of unskilled workers from farms to cities and also created unmet demand for skilled workers. This unprecedented technological change certainly contributed to the economic and financial chaos of that period.

It's possible to see the 1929-35 depression as a result of similar technological displacements which resulted from a surplus of unskilled farm workers who were forced into cities and were unprepared for an economy of skilled jobs producing cars, refrigerators and other new devices.

I haven't seen any studies comparing those two periods with the present but we could be witnessing a similar process of financial breakdown in the face of so much technological change.

I don't think it is possible to extract any simple laws or lessons from these similarities but we might take comfort knowing that all of our economic and financial problems are NOT simply due to greed and stupidity. After all, economic (and other) vices seem to be a constant in human societies.

We are probably simply facing a large change in social and working conditions produced by huge technological changes and the institutions that are now in place, including economic theories, are simply not adequate to deal with these changes.

Jan 13 12:41 PM

[BHMTom:]

I feel the biggest problem was allowing the masses to have acess to credit they should have never been allowed to do. Sorry if that hurts someone's feeling but its true and dumped many into the residential markets increasing the demand thus driving the price of the supply through the roof. Hell I doubled the value of two home with in a 6 year period. I'm talking about a $250K home into $500K in Atlanta within two years, yes a bank gave a lawyer the load. Another $250K home in Birmingham and sold for $60K...That is nuts. It took my parents 30 to own thier home. Inflation and unlimited funds with an open door. The US was a house of cards and its in the falling mode. Values have plumeted and th financial market have a black eye....totaly recoverable. Eliminate the capital gains tax to home purchases TODAY. Supply will disapear in days. Banks have no business in owning homes. I have 4 new ones around me in the $900K+ range and no one will touch em. Bad for the neighborhood vacant homes no body wants.

Jan 13 05:40 PM

[BHMTom:]

$600K not $60K...............sor...

Jan 13 05:42 PM