Obama’s Deficit and Future Recessions
This graph posted at Patterico’s Pontifications: Obama’s Budget Deficit seems scary enough:
Could future recessions be even worse as a result of Obama’s plans for such a massive expansion of the size and role of the Federal Government? A recent article titled Big Government, Big Recession by the Cato Institute’s Alan Reynolds suggests this possibility. One study has shown that the era of post-New Deal, big government spending and intervention has increased average recession length:
A 1999 study in The Journal of Economic Perspectives by Christina Romer (now head of the Council of Economic Advisers) found that “real macroeconomic indicators have not become dramatically more stable between the pre-World War I and post-World War II eras, and recessions have become only slightly less severe.” Ms. Romer also noted that “recessions have not become noticeably shorter” in the era of Big Government. In fact, she found the average length of recessions from 1887 to 1929 was 10.3 months. If the current recession ended in August, then the average postwar recession lasted one month longer — 11.3 months. The longest recession from 1887 to 1929 lasted 16 months. But there have been three recessions since 1973 that lasted at least that long.
The article points out that economies with the smallest Governmental share of GDP tend to recover the quickest. Several European economies are already recovering form the current contraction. Could a future recession be longer and more severe than the current, resulting in the nightmare scenario of calls for even more deficit spending to prop up an economy that is increasingly dependent on it?
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