Don't Fall For It

CHAPTER 10Type I Charlatan

Anyone can create money; the problem lies in getting it accepted.

—Hyman Minsky

From 1853 through 1933, the United States experienced a recession or depression once every 3.9 years. The average contraction in GDP during this time was a ghastly 23%. Each of those 22 economic downturns, save for one, saw GDP fall by double digits (and the remaining instance saw GDP fall 9.7%.)

Contrast these numbers with the period from 1934 through 2018. The last time there was a double-digit contraction in GDP was in the short recession of 1945 following World War II. Before that it was the 1937–1938 downturn. The Great Recession of 2007–2009 saw GDP fall a little over 5%, a blip on the radar screen compared to the late-nineteenth and early-twentieth century economic experience. Since 1933, the average recession in the US has seen economic growth fall by an average of just 4.3%. The two longest economic expansions in US history have both come since 1990.

There are several explanations you could offer as to why recessions have gotten shallower over time while expansions have lasted longer. The US was basically an emerging market back then. We have a far more mature, diverse, and dynamic economy now. But the reason I chose 1933 as the cut-off point, aside from the fact it was towards the end of the Great Depression, is that was the year Franklin D. Roosevelt took the US off the gold standard. An act of Congress severed the tie between gold and the dollar, effectively ...