Another economic downturn is just a matter of time
It will be harder to fight than the last one, says Ryan Avent.
One day, the forces that turned the palest, thinnest of green shoots after the financial crisis into the second-longest American economic expansion on record will change direction, igniting a new recession—for which the world is woefully unprepared. When that might happen is hard to say. Studies of American business cycles suggest that the economy is as likely to flip from growth to contraction early in the life of a boom as later on. Indeed, America has no records of an expansion lasting longer than a decade, though many countries do: Australia, Canada and the Netherlands have all enjoyed sustained growth lasting more than 20 years in recent memory. Yet all good things come to an end.
Though there is no settled view on what constitutes a global recession, worldwide slumps are usually marked out by a sharp slowdown in global growth and a decline in real GDP per person. Roughly speaking, there have been four global recessions since 1980: in the early 1980s, the early 1990s, in 2001, and in the crisis of 2007-08. Each was marked by a slowdown in GDP growth, a sharp decline in trade growth, and retrenchment in the financial sector. According to the Behavioural Finance and Financial Stability project at Harvard University, an average of four countries a year suffered a banking crisis between 1800 and 2016. From 1945 to 1975, when the global financial system was tightly controlled, most years were entirely free of banking crises. Since 1975, however, an average of 13 countries have found themselves in the throes of one each year.