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How Bad Could It Get?Will the recession be more like the 1990-'91 downturn or the Great Depression?

By James Ledbetter
Posted Friday, May 2, 2008, at 5:06 PM ET

The question of whether the U.S. economy is in a recession is, at this point, a matter of decimal points. Since the population grows faster than 1 percent, anyway, Wednesday's announcement of a 0.6 percent rise in gross domestic product for the first quarter is functionally a drop.

The real question now is: How bad could it get? Are we facing another version of the brief recession of 1990-'91, which, as James Fallows once memorably wrote, "was over by the time it was identified"? Or are we going to be wearing barrels for clothes and burning Ikea furniture to heat our homes, in a rerun of the Great Depression?

No one knows. But we may be able to arrive at a rough answer if we break the question down. How, exactly, do Americans distinguish a bad recession from a mild one—and using those yardsticks, can we at least make reasonable predictions about this one?

Here are three ways of measuring recessions.

Duration. This is a biggie, especially in terms of how history will remember the current downturn. What we think of as the Great Depression (which was actually two deep recessions separated by a few years of technical growth) is seared into the national memory in part because it lasted so long. The first phase—between August 1929 and March 1933—was nearly four solid years of declining gross national product. Many countries would find it hard to sustain such doldrums without revolution or war, and the United States has experienced only one worse downturn since reliable records have been kept—a five-and-a-half-year hell between 1873 and 1879. (A list of historic business cycle expansions and contractions can be found here.)

Could our current downturn last that long? The National Bureau of Economic Research is the body that "officially" declares a recession, and it's not yet done so because growth numbers haven't been negative (at least, not until they're revised). But Martin Feldstein, the economist who heads the NBER, said in early April that he personally believes that we're already in a recession and that it could last about twice the eight-month duration of the last two recessions ('90-'91 and March-November 2001).

It's not hard to find economists with darker scenarios. Still, Feldstein's 16-month estimate is hardly Pollyanna-ish: It would make this recession a tie for the longest since the Depression. But that's another way of saying that recessions have been getting shorter. The average economic contraction since World War II has been 10 months and the average expansion 57 months. Both figures are much friendlier than historic norms and suggest that policymakers and other economic actors have gotten significantly better at managing the business cycle.

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James Ledbetter is the editor of The Big Money, Slate's business site, which will launch later this year.
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