Academic journal article National Institute Economic Review

Analyzing Major Recessions: An Analytical Summary of a New Study of Large Recessions in the Twentieth Century

Academic journal article National Institute Economic Review

Analyzing Major Recessions: An Analytical Summary of a New Study of Large Recessions in the Twentieth Century

Article excerpt

Christopher Dow died on 1 December 1998 at the age of 82. He was a Visiting Fellow at the National Institute, coming to work almost every day until a few days before his death. His last project at the Institute had been to write a book on Major Recessions, published this month. The article which follows is a summary of the book which he wrote for this Review.

Christopher began his career in the Economic Section of the Cabinet Office in 1945 where he investigated the important practical question, how one might go about conducting fiscal fine-tuning of the economy, making, in the process, a very favourable impression on the Director of the Section, James Meade. The Economic Section became the Government Economic Service as part of the Treasury and Christopher moved with it.

In 1954 he began his connection with the National Institute, eventually becoming Deputy Director. Christopher, together with Sir Bryan Hopkin, took the Institute onto what was then completely new ground. With Treasury encouragement the Institute became the first organisation to provide a commentary on the state of the economy independently of the Government. Following on from this the National Institute Economic Review was set up in 1959 under his stewardship, to provide 'a comprehensive account of current economic developments and a coherent view of likely trends'. During this period he also worked on The Management of the British Economy, 1945-60. This concluded that macroeconomic policy had been destabilising rather than stabilising during the period. Perhaps unfortunately it contributed to the conclusion that fine-tuning did not work, rather than the more obvious point that bad fine tuning did not work. The book also provided the role-model for studies of later periods by Frank Blackaby and Andrew Britton. Other work from this period included a study, with Leslie Dicks-Mireaux, on the link between wage growth and unemployment. In 1960 Christopher married Clare Keegan, whom he had met while she had been working in the Institute library.

Christopher left the Institute for the OECD in 1963 as Assistant Secretary-General, where he again, and this time at an international level, set up a framework for regular economic commentary and analysis. Ten years later he moved to the Bank of England as an Executive Director. On retirement from the Bank he rejoined us working first, with lain Saville, on A Critique of Monetary Policy: Theory and British Experience and then on Major Recessions. Martin Weale

The book just published is a study of the five major recessions since 1920, and seeks to establish their causes. It focuses on the UK, but sets events there in their international context, and makes frequent comparisons with other countries. It concentrates on the major recessions not only because the effects are greater, but because behaviour in big and small recessions differ; and appears to be the first study to do so.

Since 1920 there have been five recessions here classed as major. The sample being so small, the method used had to be not interrogation of extensive statistical data, but intensive study of individual cases. While an examination of history, the aim of the study was theoretical, i.e. to construct a picture of how the economy behaves. That entailed a long book in which some conclusions are inevitably firmer than others.

This article therefore singles out the main, and best established, conclusions from subsidiary, less firm, ones. It is in four parts: (1) summarises the main conclusions and evidence for them; (2) gives the proposed interpretation of what caused each of the five major recessions; (3) lists a number of subsidiary propositions which taken together constitute the underlying theoretical model which emerges from the study; (4) summarises what the book says about preventing/mitigating future major recessions.(1)

Table 1. The scale of major recessions in the UK and the US, 1920-93

                      In the UK

Period of            % fall        % GDP shortfall
recession(a)       in GDP(b)        below trend(c)

1920-1                 8                 11
1929-32                6                 13
1973-5                 2                  8
1979-82                3                 11
1989-93                3                 12

Average of
5 recessions         4 1/2               11

                      In the US

Period of               % fall        % GDP shortfall
recession(a)          in GDP(b)        below trend(c)

1920-2                    2                  5
1929-3                   29                 46
1973-5                    2                  8
1981-2                    2                  4
1989-91                   1                  4
Average omitting
1929-33                   2                  5

Source: MR (for UK), table 11. … 
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