The American Spectator : This Recession's Unprecedented Costs

Text Size

The Public Policy

This Recession's Unprecedented Costs

By J.T. Young on 2.10.09 @ 6:07AM

If the previous nine recessions are any guide, this one will carry enormous fiscal costs.

The economy has been in technical recession since December 2007. With the release of Friday’s GDP figures, the economy has now met the common definition of recession: two consecutive quarters of negative growth. Its 3.8% contraction in the fourth quarter of 2008, following a 0.5% contraction in the third quarter, was the greatest drop since 1982.

With each passing economic milestone, the recession becomes more a millstone. Its severity and uniqueness become ever more apparent. As the economic costs mount, what will be its fiscal costs? Undoubtedly enormous, if history is any guide. The table below presents the effect on federal outlays, revenues, and the deficit from the trough years of the last ten recessions.

Recessions’ Federal Budget Effects: 1948-2008*
(change from previous year)

Year	Deficit	Receipts	Outlays
1949	638%	-5.2%	30.5%
1954	-82%	0.1%	-6.9%
1958	181%	-0.4%	7.6%
1970	188%	3.2%	6.5%
1975	768%	6%	23.4%
1980	81%	11.6%	17.2%
1982	62%	3.1%	10%
1991	22%	2.2%	5.7%
2001	46%	-1.9%	4.1%
2008	181%	-1.7%	9.1%

Average	209%	1.7%	10.7%

Last 5 Recessions
Average	78.4%	2.66%	9.2%

	*Source: Historical Tables of President’s Budget

If the 2009 deficit is simply within these historical parameters, it would range between $810 billion (taking the smaller average of just the last five recessions) and $950 billion (using the larger average of the last ten recessions).

But what if the current financial crisis is indeed without precedent since the Great Depression? What if the current year is not the bottom, but a springboard to an even deeper dive? Where does its fiscal impact end? The Congressional Budget Office (CBO) has released its 2009 deficit projection of $1.2 trillion, already outside these parameters -- despite the fact that it takes no account of the cost of current programs to address the crisis. As previous data and current projections both indicate, this recession’s cost could far outlast the recession itself.

About the Author

J.T. Young served in the Department of Treasury and the Office of Management and Budget from 2001 to 2004 and as a Congressional staff member from 1987 to 2000.

Letter to the Editor View all comments (7) | Leave a comment

Rocco| 2.10.09 @ 7:03AM

Well, one thing is certain. The more government mucks around with the economy, the worse it will certainly get. Can anyone say "Smoot-Hawley Tariffs?" The only thing government can do is prolong the agony of an economic adjustment. Better to bite the bullet and take the pain in one quick dose and let the economy climb out of this recession. Otherwise we will be like Japan in the 1990's with its 7 or 8 unsuccessful so-called stimulus packages.

Howard| 2.10.09 @ 8:23AM

For years the Wall Street Journal said deficits don't matter. Now they do? I'm a conservative, but, we let the horse out of the barn during the Bush compassionate conservative years. Two wars and plenty of domestic goodies and no tax increases to pay for them. A free lunch. Now it is hard for us to challenge the liberals spending plans. We dug our own hole.

Robert Rosencrans| 2.10.09 @ 8:24AM

As bad as the economic numbers are, the unemployment figures have not reached the levels of the early 1980s, let alone the 1930s — yet. A total of 598,000 payroll jobs vanished in January — the most in nearly 35 years — and the unemployment rate jumped to 7.6 from 7.2 percent the month before. The most recent high was 7.8 percent in June 1992.

And the jobless rate was 10.8 percent in November and December 1982. Unemployment in the Great Depression ranged for several years from 25 percent to close to 30 percent.

Ryan| 2.10.09 @ 8:56AM

MODEST deficits don't matter. The government should be running at a slight deficit - which puts money in the pockets of American people and not government hands - but we've been running at too deep of one for too long.

Paxton Moore| 2.10.09 @ 9:51AM

More billions of taxpayers money flows into the bottomless well ofdebts of
insolvent banks and financial companies.

Such misuse of tax money - most of it paid by ordinary workers - can only serve to drain still more public wealth
into the hands of the corrupt financial interests who caused the problem in the first place.
The skyrocketing unemployment, housing foreclosures, and economic instability and suffering
cannot be stemmed by more give-aways to the financial Robber Barons.

Time to nationalise the U.S. banking system is now!