I keep on seeing comparisons between the Great Depression and the Great Recession (e.g., [1]), and how a big fiscal stimulus could result in a big and sustained jump in output. I think it useful to visually compare the extent of downturn in both cases.

Figure 1: Log real GDP relative to 2007 peak (blue), relative to 1929 peak (red).

Source: BEA and author’s calculations.

In other words, while the deep output drop during the Great Depression was followed by rapid growth, the drop by 2009 of 3% (relative to peak) was dwarfed by the 1933 drop of 31%.

In any case, the proposition that a deep recession necessarily implies subsequent fast growth, as forwarded in the 2009 Economic Report of the President (the last one produced under the Bush Administration), is a dubious one.

The foregoing, in conjunction with stable core CPI inflation (3.5% m/m AR, 2.2% y/y), suggests to me an output gap that is smaller (in absolute value) than 18% implied by a 1984-2007 linear deterministic trend and 11% as Gerald Friedman suggests.