There is no way to reasonably estimate how long the depression will last. Michael Panzner discusses one way to estimate timeframes.
by Michael Panzner
Like children sitting anxiously in the back of the car on a long journey, many people — especially those “experts” who failed to see financial Armageddon coming or how bad it would be — keep asking if we are there yet — with “there” being the long-awaited economic recovery.
Well, if history is any guide, they might want to get their blankies out, because odds are that we still have a long (and depressing) ride ahead of us. According to a new paper, summarized by Globe and Mail columnist Michael Babad in “Great Recession May Not Yet Be Even Half Over, Study Says,” “the Great Recession may not even be half over yet.”
“The preponderance of evidence for episodes comparable with the current U.S. slump is that, while potential GDP is eventually restored, the slumps last an average of nine years,” they write. “If this historical pattern holds, the Great Recession that started in 2007:4 will not ultimately affect potential GDP, but the Great Slump is not yet half over.”
The U.S. is now into its fourth year of the “Second Great Contraction,” which began in the fourth quarter of 2007 and is eclipsed only by the Depression, they write. If it follows the pattern they’ve established, it would end in the last quarter of 2016.
“How long will the Great Slump last? Again restricting attention to the Great Depression and the post-war slumps for advanced economies, the slumps lasted from 7 ¼ years for Denmark, 7 ¾ years for Australia, 8 ½ years for Finland, 9 ½ years for Sweden, and 12 years for the U.S. Whether you consider all five slumps or just consider the two slumps following severe postwar financial crises in advanced economies (Finland and Sweden), the average duration is nine years. While this is not an estimate, it can be taken as a guide to the duration of the Great Slump.”