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Is this an unusually terrible recovery or isn’t it?

Image Credit: John Taylor

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.”

7 thoughts on “Is this an unusually terrible recovery or isn’t it?

  1. I read Reinhart & Rogoff’s article this morning, too. Even I, who argue the recovery is better than some statistics suggest, think they were a bit off.

    The definition of what a recession and expansion is does matter. For example, my firm uses US Industrial Production as a proxy (US Industrial Production tends to move in sync with GDP, and it is reported monthly as opposed to quarterly. This gives us an idea of how the economy looks usually 6 months to a year before the GDP numbers are reported, revised, and revised again). By USIP standards, this is a fairly normal recovery.

    Anyway, I felt that Reinhart & Rogoff (two economists I respect), left me with more questions than they answered.

    So, it does matter what statistic we use to measure “the economy.” But it is also important to remember that these are just proxies. The economy is not really something that can be measured, per se. There is no “it” at all. The economy is some 330 million individuals working with one another. It is possible to only approximate all this activity. Every method we have has major flaws: GDP punishes international trade and only counts finished, new products (used goods and charity do not count). US Industrial Production only counts manufacturing, mining, and utility output; it does not capture consumer activity. Consumer activity excludes manufacturing.

    Statistics are just an approximation. Nothing more. It is far too easy to become seduced by stats. The important thing here is to keep a clear head and remember what is probably the biggest threat to human intellect: the appearance of knowledge.

  2. Perhaps this “recovery” is typically bad and slow, and not unusual. But are there other factors causing weakness? Economic suppression by government is slowing growth, at least in the eyes of employers:
    1. Energy development restrictions, mostly from EPA, reducing drilling on federal land. Increasing cost of oil and electricity, outlawing new coal power plants.
    2. Promises of higher taxes
    3. Large new costs per employee by Obamacare
    4. Large increases in regulators, large volume of new regulations.
    5. Heavy restrictions on bank lending, high costs of complying with Dodd-Frank. Advantages for big banks.
    6. Vilification of the prosperous (employers). Class warfare and division. Redistribution. The private sector is doing fine. You didn’t build that.

    Without these added impediments growth and jobs would be much better.

  3. Obama is delivering 2.2% recovery GDP growth and has created ZERO jobs since he took office. The same number of people who were employed 4 years ago is the very same number who are employed today–4 years later. By definition, that’s ZERO new jobs.

    In the comparable Reagan recovery, the then president delivered 5.7% recovery growth and millions of jobs.

    Bottom line…the incompetent Oval Office simpleton needs to be shltcaned.

    • One minor nit to pick, MacDaddy:

      I think you mean to say that there has been Zero net new jobs created. Jobs are created and destroyed all the time (it’s a healthy aspect of the economy). However, in a growing economy, the number of net jobs created usually exceeds the number destroyed.

  4. You may have good reason to accept the NEBR calculation of “recovery.” (consistency??)

    But, actually, that calaculation is tied to the concept of GDP (which has that crucial element of government spending in the bowels of its sums)

    Looked at another way, the private economy, has been bled, tyhere has been a series of transfusions whereby the fiscal state of the governments (pl) have been bled

    If one takes the over-all conditions in the aggregate (as NEBR does GDP) there is no “recovery” in the aggregate. In fact, a case can be made that the “Fisc” has descended more than the private has leveled out. And-

    Proposals are afoot to come and get from the private as much blood as possible to revive the “Fisc.”

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