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Portrait of a Dragon King…

“Power law distributions incarnate the notion that extreme events are not exceptional events. Instead, extreme events should be considered to be rather frequent and to result from the same organization principle(s) as those generating other events: because they belong to the same statistical distribution, this suggests common generating mechanism(s). In this view, a great earthquake is just an earthquake that started small … and did not stop …”

Didier Sornette, Dragon-Kings, Black Swans and the Prediction of Crises

EmploymentRecessionsJuly.jpg by Caculated Risk

EmploymentRecessionsJuly.jpg by Calculated Risk

So, curiosity got the better of us, and we decided to see if we could finish this portrait you have been busily sketching out – your masterpiece of 21st Century political-economic folk art.

We did some research on how the economic community projected this unfolding epic, and found a 2007 study produced up by John Schmitt and Dean Baker as they tried to get a handle on the worst case scenario for this recession:

If the next recession follows the pattern set by the three most recent downturns, a recession in 2008 would raise the national unemployment rate by … 3.8 percentage points (a severe recession along the lines of the early 1980s), increasing the number of unemployed Americans by … 5.8 million. Based on the historical pattern, the unemployment rate and the number of unemployed would continue to increase through … 2011 (to 8.4 percent in the case of a more severe economic downturn).

We admit, it did spark our imagination.

We began to build a projection from scratch based on the 1981 and 2001 recessions, which recessions have the reputation for being, respectively, the most severe recession and the longest recession of the post-war period.

And, here is the result: Comparing the actual 1981 and 2001 recessions, the actual data from the current recession, and our rendition of the projected course of this recession:


The Dragon King Recession

You’re gonna need a bigger boat.

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