Recessions Under the Gold Standard

One of the discouraging features of economic debate today — maybe it was always thus, but it seems especially intense now — is how much of it rests on “facts” that aren’t, but which become articles of faith. I’ve been surprised, for example, to encounter assertions that Fannie and Freddie held a third of subprime mortgages, which I knew wasn’t remotely true. Where did that come from? Mike Konczal points us to James Kwak, explaining that the source for that number is a consultant to the mortgage industry who made up his own definition of subprime — one that bears little resemblance to the standard definition, and which happens to produce a vastly inflated number for Fannie/Freddie.

Anyway, one alleged fact I keep hearing is that recessions were short and shallow under the gold standard. I don’t know where that’s coming from, but it just ain’t so. The data aren’t as good for the pre-1933 era as they are now, but for what it’s worth they suggest that there were a number of nasty, prolonged slumps under the gold standard. In particular, the Panic of 1893 was associated with a double-dip recession that left industrial production depressed and unemployment high for more than 5 years. Here’s the estimated unemployment rate from Historical Statistics Millennial Edition:

DESCRIPTIONHistorical Statistics of the United States

That’s a pretty ugly, prolonged slump. Gold is no panacea.

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