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Wednesday, August 3, 2011

How bad was it? It was so bad...

by John MacBeath Watkins

Via Nate Silver at FiveThirtyEight, here's a chart that will curl your hair:

As always, you should read Nate's post. Most charts don't really show how far below trend the economy is, or show clearly how the current recession stacks up against past ones.

As Matthew Yglesias has pointed out, this recession was much worse than our policy makers knew when they were devising the stimulus:

"Specifically, when Barack Obama took office in the first quarter of 2009, the BEA was saying that the economy contracted 0.5 percent in the third quarter of 2008 and 3.8 percent in the fourth quarter. In fact, we now know that it plunged 3.7 percent and 8.9 percent. This is a huge error. Imaging making the same error in the opposite direction. That would be the BEA describing a major economic boom as a serious recession. Instead they mistook a cataclysmic collapse for a mere serious recession. And this recession happened before Obama took office, meaning that he was faced with a much larger output gap than he realized. Consequently, he framed a policy response that was inappropriate to the actual severity of the situation."

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