What Crisis?

In the grand scheme of things, says Michael Clemens, a scholar at the Center for Global Development, the current economic meltdown is nothing but a “small bump” on the road.

Clemens notes that Mexico took just three years to recover from its “Tequila” Crisis and Thailand only six years from the Asian Crisis in 1997. “The point is that in the long march of development, some financial crises amount to rounding error relative to the real economy.”
Since 1820, Clemens claims, the economic pattern has not shifted: “Since 1820 … we had violent financial crashes of various types, bank panics, piles of recessions and a huge depression, many foreign wars and one enormous domestic war, had a central bank and didn’t, were on the gold standard and weren’t, had governments topple in scandal and multiple leaders assassinated, and what did it all amount to in the medium to long run? In per-capita income terms: Nothing. The overall trend does not bend or shift. Every bad year was followed by a good year that returned us to trend.”

According to Clemens, the average growth rate of real per capita incomes over the last 190 years in the U.S. has been 1.8% a year, including the great bull market of the last 10 years. “The Great Depression was traumatic in countless ways, but astonishingly, it’s not clear that we are any worse off today than we would be if the whole thing never occurred. Anyone who made such a claim in the 1930s would have been scoffed at, but that’s what happened.”