Variations of these graphs are going around

[solarbird]

Okay, a second short thing. Remember the bank "stress tests" and the jobs savings projected by the Obama economic recovery plan? They had various assumptions built in. The first is the "stress test," which was supposed to determine capital requirements needed for banks to handle two scenarios - the "baseline" and the "more adverse" environment projections. Here's how that's working out so far, graph courtesy Mish Shedlock from his post, here:


The "baseline" scenario was consensus unemployment; the "more adverse" was a "really bad case" projection. That red dot is where we are. And unless that spikes back down soon, that's ... not good.

You're also seeing another chart going around, this one; the upper curve is the consensus forecast again, the lower curve is the with-recovery-package projection. I haven't verified this data but the upper curve does match the consensus forecast.

Both relate back to a paper I really need to get off my ass and finish reading, "Forecasting the Depression," on how most economists continually misread future trending throughout the Great Depression, and how there would good reasons for that - valid ones. But despite that, you get realities like this:


Chart courtesy American Economic Review, from the paper
"Forecasting the Depression: Harvard vs. Yale,"
by Kathryn M. DOMINGUEZ, Ray C. FAIR, and Matthew D. SHAPIRO.
Now, given how completely the usual suspects have missed this cycle throughout - the parallels are close enough to be disturbing - I am and have been reacting very suspiciously to projections for the better further out. The last time we had one of these, none of the systems behaved as per their usual histories. Keep that in mind.

Comments

[llachglin.livejournal.com]

The thing is, the Depression was a largely unprecedented event and it completely overturned conventional understanding of economics. While many projections about the current economy are in error, there's not a lot of evidence that suggests that we're in similarly unprecedented waters where we have no good economic models and have to invent them as the crisis goes on. Thanks to that, even the bad estimates aren't likely to be as bad as those shown in these images. One reason people make so many Great Depression and Japan analogies is that those examples are sufficiently similar to produce realistic models of what's happening this time around.

My concern is that remarkably few commentators understand these other models and the bearing they have on economic analysis. Those who do seem to understand have been skeptical about the stress tests from the beginning and have a much more realistic view about the depth of unemployment that will remain even if the recession as narrowly defined eases some time in the next several months.