This year, 2018, will be the 11th year after the 2007 business cycle peak that preceded what is generally called the “Great Recession“. This year American national income per capita will be about 7.5% above its 2007 level. If we are lucky we will hit 10% above 2007 in 2020. That is growth of 0.4% per year—compared to the yardstick of 2.0% per year that we were reasonably expecting back in 2007.
1940 was the 11th year after the 1929 business cycle peak that preceded the Great Depression. Output per capita then relative to 1929 was 10.5% higher. That is growth of 0.95% per year. And output per capita in the 12th year, 1941, was 29% higher than at the 1929 peak—growth of 2.5% per year.
Up until now the disastrous consequences of the financial crisis that started the Great Recession have been first far less dire and then less dire than the disastrous consequences of the financial crisis that started the Great Depression. But this is the year that changes. Now and looking forward, the Great Recession is going to cast a larger shadow on the American economy them the Great Depression did.
But isn’t this the result of the fact that the US government iin 1940 and 1941 found itself facing the Nazis and imperial Japan? In short, no. Subtract all world war two related spending from 1940 1941 and, relative to the previous business cycle peak, in its recovery the Great Depression-era United States would still outstrip us. Defense spending was 1.7% of national income in 1940 and 5.5% of national income in 1941. The true mobilization did not begin until after Pearl Harbor, which came in December 1941.