Wednesday, January 14, 2009

Three things I learned in econ class

"Many people say this is the end of capitalism as we know it."

This comment came from a woman siting in my economics class sitting three rows in front of me. This economy has created a Chicken Little in all of us (myself included). The end is near! Dooms for all of us! The worst economy since the Great Depression (I use that one a lot)!

I'm taking this class because I want to separate facts from fear. This class at Stanford Continuing Studies (only $285!) has been great. Some facts from my soft-spoken professor Jim Howell:

1. The rise and fall of the economic system always corrects towards an equilibrium of 2-4% growth. In other words, what goes down must come up.

2. The average time span for an economic recession has narrowed in recent decades, while periods of economic expansion have increased. According to the National Bureau of Economic Research, there hasn't been a recession lasting more than 16 months since the early 1980s. The most recent recession in 2001 lasted only 8 months, followed by 73 months of expansion (fueled by the easy credit that got us into this mess). On average, recessions between 1945 and 2001 have lasted 10 months, and expansions spanned 57 months.

3. The stock market is not a leading or lagging indicator of the economy. It's more of an emotional reaction to what's perceived to be true.

Maybe this recession, which started in December 2007, will buck the trend and put us in a deep freeze for more months than the historical average. But let's remember that everything that goes down in the economy always finds a way back up.

Here's the question: what are the variables that will fuel our recovery?

1 comment:

  1. good stuff. sounds like you're really digging your econ class.