For the Romney campaign, the “Compared with what?” test is easy, and the Obama administration failed it. “The historical record is clear,” four economists wrote in a white paper released by the Romney campaign. “Our economy usually recovers quickly from recessions, and the more severe the recession, the faster the subsequent catch-up growth.” The absence of a quick recovery, they went on to argue, shows that “America took a wrong turn in economic policy in the past three years.”
That argument relied mainly on the work of Michael Bordo and Joseph Haubrich, who had shown that the American economy typically recovers swiftly from recessions. But when I contacted Bordo, he didn’t see this case as typical. “We found that a lot of the difference between what would’ve been predicted by the normal behavior of recessions and what we observed now is explained by the collapse of residential investment,” he said. “Put another way, if residential investment were what it was in a normal recovery, we would have recovered already.”
The unquestioned authorities on major financial crises and their lengthy hangovers are Carmen Reinhart and Ken Rogoff, authors of “This Time Is Different,” the key history of the subject. And, in a new paper, they try to set the record straight: “The aftermath of the U.S. financial crisis has been quite typical of post-war systemic financial crises around the globe. If one really wants to focus just on United States systemic financial crises, then the recent recovery looks positively brisk.”
The problem, they say, is that many of the attempts to look at this question — and, in particular, the politically motivated attempts to look at this question — have tried to compare our financial crisis with both normal recessions and what are called “borderline financial crises.” But what we had wasn’t a normal recession nor a borderline financial crisis (a term that comes from important work done by the World Bank in the ’90s). What we had was a systemic crisis. And by that measure, we’ve done pretty well.
What Reinhart and Rogoff saw when they compared our crisis with others in the same category is that we did a much, much better job at the beginning. “We have put a much higher floor on the initial contraction,” Reinhart says. “The initial contraction in these crises is unambiguously worse in most cases.”
That speaks well of the emergency measures put in place in 2008 and 2009: the Troubled Assets Relief Program, the Federal Reserve’s efforts and the stimulus. But since then, the recovery has proceeded at a depressingly normal pace — evidence, perhaps, that it wasn’t particularly wise to take the foot off the economic accelerator in 2011 and 2012.