Commenting on a recent article of mine in The Wall Street Journal, Peter Gartside claims that:
Prior to 1913, the U.S. annual gross domestic product changes oscillated between extremes of approximately plus or minus 15%. After the establishment of the Federal Reserve Board, the limits of GDP oscillations narrowed to approximately plus or minus 6%.
You may well wonder where he got that idea, since there are no official estimates of gross domestic product (GDP) for years before 1929. In the early 1960s, however, John Kendrick and Simon Kuznets bravely attempted to construct such estimates for gross national product (GNP). That would be close enough to modern GDP data were it not for the primitive statistics and technology they had to work with.
The table (after the jump) shows these heroic old estimates for real GNP from 1889 to 1914. In that period, there was only one year (1908) in which the drop in GNP exceeded 6% and none that remotely approaches the "minus 15%" figure of Mr. Garstide's imagination.
Real GNP
billions of 1958$
1889 49.1
1890 52.7
1891 55.1
1892 60.4
1893 57.5
1894 55.9
1895 62.6
1896 61.3
1897 67.1
1898 68.6
1899 74.8
1900 76.9
1901 85.7
1902 86.5
1903 90.8
1904 89.7
1905 96.3
1906 107.5
1907 109.2
1908 100.2
1909 116.8
1910 120.1
1911 123.2
1912 130.2
1913 131.4
1914 125.6
Historical Statistics of the U.S., Series F4
CEA chair Christina Romer's research shows that these early estimates "exaggerate the size of cycles because they are based on the assumption that GNP moves approximately one for one with commodity output valued in producer prices." If we tried to estimate recent GDP figures on the basis of commodity output and prices, then postwar cycles would look even wilder than they already do. Consider, for example, using the recent gyrations in producer prices of oil and metals as a proxy for GNP.
Even if we relied on the ancient and flawed pre-Romer GNP estimates above, however, there were still no downturns before 1913 that were nearly as extreme as 1929-33 or even 1920-21. And there was no recession between the 1870s and 1913 that lasted as long as the slump of 2008-2009.
Whether we're talking about fiscal or monetary fine-tuning, all the technocrats efforts at taming the business cycle in the past 40 years appear no more successful than the pre-Fed policies of doing without a central bank and doing without deferred tax increases (debt-financed "fiscal stimulus" plans).