Good Old Days of Growth?
The disappearance of recessions, and a different view of American economic historyI was doing some poking around the FRED databases -- which have been nicely redesigned and reorganized in the last few days -- and found that the NBER has business-cycle dating data going all the way back to 1854. (Wow, right? This is the economics equivalent, almost, of core sampling.)
When you look at the data, something immediately jumps out at you: modern Americans spend far less time in recession than did the Americans of the 19th century. In fact, we have spent roughly 15 percent of quarters in the postwar era in recession, compared to roughly 40 percent in Gilded Age America. To put that in perspective, postwar America gets four additional years, on average, of real growth before a recession than did the America of history.
For all its excesses -- the creation of extraordinary wealth against profound urban poverty, the latter best captured by Jacob Riis' How the Other Half Lives -- I had always thought of the Gilded Age as an era of tremendous growth and economic uplift. I might have loathed the costs and mocked the Panglossian attitudes of contemporaries like Herbert Spencer, who deemed poverty and inequality "the decrees of a large, far-seeing benevolence," but I would have said that the cost was ultimately worth it. Without the economic turmoil and social displacement, I would have said, the United States would not be nearly as great as it is today.
Now I am not so certain. I recognize the tremendous growth in production of natural resources and industrial production, but were the recessions the necessary byproduct of America's metamorphosis, or rather a hindrance? Remember, this was an era of no central bank, of price volatility but not inflation, of well-known socioeconomic inequality. In libertarian circles, the late 19th-century is seen as the pinnacle of growth and of laissez-faire and treated with according reverence. That story is not really true.
Statistics which show unprecedented growth during the Gilded Age, I worry, are either imprecise, inaccurate, or worse, gamed according to their start- and end-points. When one looks at larger datasets of GDP growth -- see this Romer article, too -- we see that the 2-percent-a-year real growth is a relatively recent phenomenon.
Early America, contrary to what I'd thought, was not some sort of growth paradise. It would be very possible that it grew quickly in between the frequent recessions, but the data do not support such a case: from 1800 to 1840, real GDP per capita grew at 0.4 percent annually; from 1840 to 1880, 1.44; from 1880 to 1920, 1.78; from 1920 to 1960, 1.68; from 1960 to 1978, 2.47.
It's a very different picture of America, when you think about it. Frequent recessions, slow growth, little improvement in living standards, profound inequality -- all of this against what we have (had?) in the postwar era: fewer recessions, faster growth, faster improvement of living standards, less inequality.