The economic recovery that began in the summer of 2009 has been marked by slow economic growth and little job creation. But how does it compare to recoveries throughout U.S. economic history?
Economists Carmen Reinhart and Kenneth Rogoff say the recovery’s anemic nature “shouldn’t be surprising. We have presented evidence that recessions associated with systemic banking crises tend to be deep and protracted and that this pattern is evident across both history and countries. .. According to our 2009 metrics, the aftermath of the most recent U.S. financial crisis has been quite typical of systemic financial crises around the globe in the postwar era. If one really wants to focus just on U.S. systemic financial crises, then the recent recovery looks positively brisk.”
The statement, from a Bloomberg op-ed, is meant to counter claims by other economists that the current recovery has been unusually slow versus earlier recoveries from recessions with financial crises. (As seen in the above chart.) Reinhart and Rogoff say those claims are wrong because a) they include instances with out systemic financial crises and b) they measure recoveries improperly:
The recent op-eds focus on GDP growth immediately after the trough (usually four quarters). Our book examined both levels and rates of change of per capita GDP; recovery is defined by the time it takes for per capita GDP to return to its pre-crisis peak level.
John Taylor, one of the economists singled out by R&R, responds:
Reinhart and Rogoff argue in favor of a narrower definition of a financial crisis, and they thus focus on a subset of the eight Bordo-Haubrich recessions with financial crises (for example, they exclude 1913 and 1982). This alone does not change the Bordo-Haubrich results as the figure in my post of last week makes clear. But Reinhart and Rogoff argue that one should look at the downturn as well as the recovery when looking at severity. There is no disagreement that recessions associated with financial crises have tended to be deeper than those without financial crises. The disagreement is over the recoveries. By mixing downturns with recoveries Reinhart and Rogoff get different results from Bordo and Haubrich.
So the question comes down to which definition of recovery is superior. I guess I come down on the side of defining a recovery the same way the National Bureau of Economic Research does (their the folks who make the “official” recession/recovering calls). Their analysis goes back to 1857. This is also what Taylor does. So it’s not like Taylor is using some strange, back-of-the-envelope definition. It’s pretty standard, actually.
I think the more important question is whether this recovery represents the optimal outcome after the Great Recession, represents the best policy could achieve. And I think the answer that question is “no.”