Mar 09 2009

State of the Wave — The Recession and the Next Race to Space

This summary updates recent posts on the economic crisis and on space trends for 2009, with a focus on economic data and forecasts. The last 200 years support a model of nearly decade-long ebullient Maslow Windows triggered by major economic booms, that are typically preceeded by financial panics and major recessions. But surprisingly, the Maslow Window activities (e.g., the next race to space) are not delayed or dimished by the contractions. Forecasts for the current recession continue to mirror this two-century pattern.

Will the next international race to space start “on schedule” near 2015? Click marsbase.jpg.

Robert J. Barro, a Harvard economics professor and Hoover Institution fellow, has studied data on GDPs, consumption, and stock market directions for the U.S. and 33 other countries as far back as 1870 (WSJ, 3/4/09).

Mr. Barro defines a “depression” as a drop in per capita GDP or consmption by 10% or more. (A major depression is 25% or more.) Since 1870, he finds two such events in the U.S.: 1) the Great Depression from 1929-33 with a decline of 25%, and 2) a fall of 16% during the post-WW I time from 1917-21. Note that the pre-Maslow Window panic/recessions of 1893 and of 2008, although severe events, are not classified as depressions. Barro’s data also supports our observation that post-Window panic/recessions are considerably more severe than pre-Window events.

Barro’s international bottom-line is that “periods experiencing stock market crashes, such as 2008-09 in the U.S., represent a serious threat. The odds are roughly one in five (20%) that the current recession will snowball into a macroeconomic decline of 10% or more that is the hallmark of a depression.” This is consistent with our observation that, over the last 200 years, 4 out of 5 Maslow Windows were preceeded a financial panic and recession, but not a depression. By the way, the only Maslow Window of the last 200 years that was not presaged by a panic/recession was the 1960s Apollo Window, but ironically it was prematurely terminated by the Vietnam War.

Interestingly, for the last two months, participants in the prediction market Intrade.com have been estimating the odds that the US GDP will decline by 10.0% or more from its peak value between 2008 and 2009, as about 20%. (It appears that many Intrade.com participants are also Wall Street Journal subscribers!)

Despite plummeting house prices, increasing unemployment, and the lowest consumer confidence since 1967, Federal Reserve Chairman Ben Bernanke is currently projecting a relatively optimistic scenario. He sees the economy recovering during 2010, if President Obama can revitalize the financial system. This would enable the global economy to re-ignite the “greatest global boom ever” — that was interrupted during summer, 2007 — in plenty of time for the opening of the 2015 Maslow Window.

Bernanke’s optimism is echoed by Strafor: Although “the world begins 2009 in its first synchronized recession since 1974…Stratfor sees the American economy as a strong entity that will bounce back relatively quickly.”

Although the 4th quarter was “dismal,” Fisher Investments is also bullish and does not expect a Great Depression or a “Lost Decade” like in Japan in the 1990s. They see President Obama as “moving toward the center…but very willing to spend enormous sums of money which can be and usually is appropriate at this stage of the economic cycle.” Fisher sees current market prospects more like Keynesian tennis than gravity, “What falls most usually bounces most,” and like Bernanke, they expect a “V”-style recovery within the next year or so.

However, Barro’s study of 59 international, non-war depressions shows they average almost 4 years in duration. This would put our recovery near 2012 — still sufficient for happy days to usher in a full-blown, spectacular Maslow Window in 2015. Barro believes that “if we are lucky, the current downturn will also be moderate, though likely worse than other post-World War II recessions, including 1982.”

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  1. […] is “expecting the recovery to be a slow one,” (WSJ, 7/3/09), another Harvard economist — Robert Barro — who has examined data on recessions back to 1870 for the U.S. and 33 other countries, says […]

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