Pushback

Drs. Reinhart and Rogoff are pushing back against those economists, mostly Romney advisors, who have, contra the findings of Reinhart and Rogoff, claimed that American economic recoveries after a financial crisis are different than those in other countries:

Although no two crises are identical, we have found that there are some recurring features that cut across time and national borders. Common patterns in the nature of the long boom-bust cycles in debt and their relationship to economic activity emerge as a common thread across very diverse institutional settings.

The most recent U.S. crisis appears to fit the more general pattern of a recovery from severe financial crisis that is more protracted than with a normal recession or milder forms of financial distress. There is certainly little evidence to suggest that this time was worse. Indeed, if one compares U.S. output per capita and employment performance with those of other countries that suffered systemic financial crises in 2007-08, the U.S. performance is better than average.

This doesn’t mean that policy is irrelevant, of course. On the contrary, at the depth of the recent financial crisis, there was almost certainly a risk of a second Great Depression. However, although it is clear that the challenges in recovering from financial crises are daunting, an early recognition of the likely depth and duration of the problem would certainly have been helpful, particularly in assessing various responses and their attendant risks. Policy choices also matter going forward.

John B. Taylor has responded:

Also, as Jon Hilsenrath and Ezra Klein report, over the weekend Carmen Reinhart and Ken Rogoff released a short rebuttal to Bordo and Haubrich as well as to several opeds. 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.

For me the greatest question is where you go from here and I’d like to see a lot more from the Obama Administration on what they’d do with another four years of stewardship.