Spero Consulting

We men­tioned the answer to our ques­tion in Sunday’s post, Bernanke: No, but it is worth repeat­ing as a stand-​alone post.

Many sup­port­ers of Ben Bernanke (and other politi­cians) cite last year’s increase in the stock mar­ket as evi­dence that the he or they “saved the econ­omy” and/​or “pre­vented a depression.”

For those read­ers who don’t have the per­cent­ages mem­o­rized, the Dow Jones Indus­trial Aver­age increased about 20% in 2009. From its nadir early last March, it increased about 61% by year-​end. (Yeah, Jan­u­ary and Feb­ru­ary ’09 were par­tic­u­larly cruel.)

That seems impres­sive, right?

Well, in 1932, the Dow Jones Indus­trial Aver­age increased about 64%.

Recall that the Great Depres­sion is sup­posed to have started with the stock mar­ket crash in Octo­ber, 1929, and ended around 1940 or so. (Among econ­o­mists who care about such things, there isn’t as much con­sen­sus about its end­ing as its beginning.)

Now, whether one takes the absolute peak or some other smoother mea­sure of the index’s lev­els, it took until 1954 or 1955 to approach the highs of 1929 & 30.

So, while it’s very nice when­ever equity mar­kets increase, note that the extra­or­di­nary stock per­for­mance in 1932 did not sig­nal an end to the depression.

Also, note that it took another 22 years (or so) to attain new equity index highs, and those lat­ter highs were not adjusted down­ward (for the infla­tion) dur­ing the inter­ven­ing 22 years.

So, while every rea­son­able and sane per­son hopes that the worst of the eco­nomic cri­sis is over, note that it need not be for many, many peo­ple or for the econ­omy as a whole.

Now, per­haps we are inat­ten­tive, but we haven’t heard Mr. Bernanke take any credit for last year’s per­for­mance. We would attribute that to the fact that he knows more about the Great Depres­sion than many of his sup­port­ers do.