Monday, January 12, 2009

More Exaggeration of Great Depression Parallels

Obama's choice for CEA chair draws parallels with the Great Depression. She says: the economy got out of hand after the 1929 financial panic, and we should not let the same happen now.

But is today's economy -- so far without any "help" from the Obama administration -- following the same path? Below is the Federal Reserve's monthly Industrial Production Index (which also existed in 1929). I have normalized Oct 1929 to be 100 (the stock market crashed at the end of that month) and Oct 2008 to be 100 (the stock market crashed at the beginning of that month). One thing we notice is that, after the summer 1929, it was a long time until the index increased again (the first increase is off the scale -- in early 1931). In 2008, the index did not increase again until ... um ... October.

As in 1929, the industrial production index fell 4 or 5 percent PRIOR to the 2008 crash. In 1929, the index fell 5 percent in November after falling 2 percent in October. In 2008, the index fell 0.7 percent in November after rising 1.4 percent in October.

2008 looks different to me. On Friday the Fed will release December 2008 Industrial Production, and we can see how close it gets to the 1929 time series.

No comments: