The Great Moderation

Reading John Quiggin’s most recent book blogging post, I was reminded of how atypical my age cohort’s experience is.  Counting the current (possibly ended) recession, we’ve lived through three recessions, two of which were quite mild.  Depending on our exact age, we were only paying attention for only one of those.  I knew about a ‘recession’ in 1990-1991, but I was six and what did I understand?  But before our generation:

Whatever the defintion, in the years before 1981 (the end of the Volcker recession) recessions in the US were relatively frequent, with the intervening expansions averaging a little over four years. The NBER Committee defined nine recessions between 1945 and 1981, two of which (those of the early 1970s and the double-dip recession of 1980-81, were both long and severe).

I was quite struck by this difference, which has to have a huge effect on how people our age perceive the financial crisis and uncertainty about the future.  You can imagine the effect going either way.  Perhaps we assume there has to be a return to “normality” and sustained growth, or you can imagine the sheer idea of a recession being so unfamiliar and paralyzing that we turn towards an apocalyptic mindset.

Of course if Quiggin is right in thinking that The Great Moderation was a mirage, the next quarter of our lives will nothing like what we’ve experienced so far.


2 responses to “The Great Moderation

  1. I’ve felt pretty calm about the recession. I don’t have enough in my 401K to be decimated. My parents sold “my” stocks to pay for college. The biggest thing I did during this recession is quit my job so I could be happier.
    Our generation has a lot less to lose in a recession, so doesn’t that temper us running toward the apocalypse?

  2. I didn’t think about it that way, and it’s probably true that the typical member of our generation will have less reason to watch the markets and worry about that. I have a little bit of stock, but in my mind, it’s marked for emergencies or “way in the future” so I don’t worry so much.

    But I think there’s every reason to believe that our generation will be hit hardest. For all the attention that gets paid to the stock market, the people hurt worst in a recession are those who lose their jobs, and that’s still overwhelmingly people at the bottom of the heap. For that matter, I’ve read that people who leave school and take their first “real” job during a recession can expect 10% lower lifetime earnings just because they start out in less desirable positions.