Donald Trump supports opening up the libel laws, and defending those he sees as victims of nasty public defamation campaigns. Well, I can suggest at least one libel victim that needs a champion: the U.S. economy.
America’s economy gets a bad rap these days, thanks in no small part to Republican politicians’ constant smears and insults.
“This is the worst recovery after a deep recession since World War II,” declared Senate Majority Leader Mitch McConnell (R-Ky.) on Fox Business Network on Tuesday. He’s used similar language on CNBC, PBS, Fox News and other outlets in recent days, as have other conservative commentators.
This data point, Republicans claim, is an indictment of the Obama administration. It’s also supposed to persuade voters to hold their noses and rally around the GOP’s bigoted new standard-bearer and the alternative economic vision he supposedly represents.
Except this assessment of our economy is completely wrong. Or at the very least, highly misleading.
In fact, if you go by the historical record, we may have exceeded expectations for where we should be this many years after a severe financial crisis. And relative to most other countries that weathered a crisis when we did, we’re doing spectacularly well.
It’s true that the Great Recession has been followed by a slow and shallow recovery. Rather than bouncing back with annual growth rates in the 3 or 4 percent range, as we might have hoped, we’ve been trudging along at about 1.5 to 2.5 percent. Hiring has lately disappointed, too.
This record seems pretty damning. Except, in the grand scheme of things, it’s not.
See, it’s not really fair to compare today’s recovery with any other post-World War II recovery, because this is the first time since World War II that we’ve had to recuperate from a systemic financial crisis. (The last systemic financial crisis in the United States led to the Great Depression — which was before World War II.) And financial crises are uniquely traumatic events for economies, according to the work of Harvard researchers Carmen M. Reinhart and Kenneth S. Rogoff.
Recoveries following systemic financial crises, Rogoff told me in an email, are always “far slower and more protracted” than those following normal recessions.
How slow and protracted? Well, in a recent paper, the authors examined the aftermath of 100 financial crises spanning the past century-and-a-half. They found that, on average, it takes a country more than eight years to return to its pre-crisis level of per capita income.
In the United States, following the 2007-2008 financial crisis, we achieved that milestone in “only” seven years, according to the most recent data from the International Monetary Fund’s World Economic Outlook.
We beat not just the (admittedly dismal) historical average, but the records of most of our crisis-stricken contemporaries, too.
The United States was one of 12 countries that suffered a systemic financial crisis in 2007-2008. Of that dozen, only three others have since recovered all the territory they lost in the crisis: Germany, Ireland and Britain. The IMF forecasts that two more will recapture their pre-crisis peaks this year, and several more will do so in the next few years. Three countries — Greece, Italy and Ukraine — were so scarred by the crisis that forecasts going all the way out to 2021 still don’t show them regaining their lost ground.
Why did the United States do so much better than most of its peers? Partly better policy, partly luck.
Our central bank, the Federal Reserve, opted to loosen monetary policy and undertake controversial, unconventional measures early on. Today many economists credit these actions with keeping the United States from tumbling into a full-blown depression. The European Central Bank, by contrast, took a long time to follow suit.
On fiscal policy, too, we made better choices. Compared with the United States, many European countries engaged in much more draconian austerity measures, which often turned out to be counterproductive.
On the luck side of the ledger, though, we also benefited from having the world’s reserve currency. This meant investors around the world continued to gobble up U.S. Treasurys at the height of the crisis, which relieved U.S. policymakers of pressure to undertake big austerity measures (as, for example, Greece had to do). Plus, Americans were able to wipe out their unpayable private debts much more quickly than many of their counterparts abroad did, since mortgages here are more likely to be non-recourse loans. Foreclosures were painful, but once they were over, the underlying loans were discharged, and families could move on with their lives.
Today, in the United States, the economy may not feel great. But compared with the roads not taken, it ain’t so bad.