Whenever the subject of the weak economic recovery under President Obama comes up, his defenders tend to respond along the lines of: "What do you expect, since the recession was the worst since the Great Depression?"
It's an argument the head of Obama's Council of Economic Advisers made last week, after the U.S. created just 69,000 jobs in May, and unemployment remained stuck above 8% for the 40th month in a row.
"There is much more work that remains to be done to repair the damage caused by the financial crisis and deep recession," wrote Alan Krueger.
Obama himself has used this excuse. "From the moment we first took action to prevent another Great Depression, we knew the road to recovery would not be easy; we knew it would take time," he said last week.
But the history of economic cycles suggests that the exact opposite should have happened.
"Typically following a recession, the economy rebounds strongly," Richmond Federal Reserve President Jeffrey Lacker noted in the bank's quarterly journal.
Bigger They Fall...
What's more, deeper recessions tend to produce strong recoveries.
"You can't find a single deep recession that has been followed by a moderate recovery," Dean Maki, chief U.S. economist at Barclays Capital, said back in August 2009.
The 1957-58, 1973-74 and 1981-82 recessions were the sharpest post-war slumps until the Great Recession. From those lows, the economy rose 15%, 18.5% and 19.6% over the next 11 quarters, respectively, vs. just 6.8% for the Obama recovery.
The president and his economic advisers also initially expected a solid recovery this time around.
Obama's first budget in February 2009, forecast "rapid growth" that "is expected to push down the unemployment rate ... to 5% by the end of 2013." That month, Obama told the public that the $830 billion stimulus plan would "ignite spending by businesses and consumers" and "usher in a new wave of innovation, activity and construction."
The administration's August 2009 budget update claimed that "once the recovery takes hold, it is expected to gain momentum as time passes."
And as the true depth of the recession became clear over the next several months, the White House continued to promise a solid recovery.
Hiring Never Boomed
Obama's next budget in February 2010 predicted 3.8% real GDP growth in 2011 and 4.3% in 2012. The White House Council of Economic Advisers that year touted the "rapid turnaround in growth" in 2009 as "remarkable" and "impressive."
In April 2010, Vice President Biden promised that "some time in the next couple of months, we're going to be creating between 250,000 jobs a month and 500,000 jobs a month." (Monthly job gains have averaged just 133,000 since Biden said that.)
And in June 2010, Obama said "our economy is getting stronger by the day."
The administration wasn't alone in expecting a solid recovery. The Congressional Budget Office in 2009 projected growth rates of 4% or above starting in 2011.
IHS Global Insight chief economist Nariman Behravesh wrote in November 2008 that "in my view the recession will be deep — but the recovery is also likely to be strong."
Reuters reported in September 2009 that strong retail sales offered "hope for a solid recovery from a severe recession" and noted that some analysts expect "the economy could enjoy a quick recovery from the slump that started in December 2007."
And in April 2010, First Trust Advisors economists Brian Wesbury and Robert Stein argued that "the economic data clearly trace out a V-shaped recovery."
The connection between large contractions and big expansions is simple enough. Nobel Prize-winning economist Milton Fried man likened it to a plucked guitar string. The further down you pull it, the faster it will snap back. Research since has generally affirmed the connection.
Yet, as IBD reported recently, despite the fact that the 2007-2009 recession was very deep, the current recovery has been uniquely anemic. In fact, growth rates for the current expansion have been well below the average set by the previous 10 recoveries.
So why, then, has this recovery been so unusually weak?
Credit Crisis Impact?
According to some economists, it's because the recession was caused by a financial crisis, which they argue tends to produce more sluggish economic recoveries.
"As the economists Ken Rogoff and Carmen Reinhart have written, recoveries that follow financial crises are typically a hard climb," Treasury Secretary Timothy Geithner stated in an August 2010 op-ed.
But others have challenged this contention. A September 2011 Atlanta Fed paper concluded that the history of recessions in the U.S. offers "no support" for the claim.
And a November 2011 paper by economists at Rutgers University and the Cleveland Fed found that "recessions associated with financial crises are generally followed by rapid recoveries."
Cure-All Or Poison
Some on the left blame the lack of adequate stimulus for the recovery's tepid pace. Former Obama economic adviser Larry Summers this week called for still more borrowing.
Those on the right blame Obama's own policies for slowing the recovery down, pointing to the substantial increase in the national debt, the growth of costly new regulations, the threat of new taxes, the impending ObamaCare mandates, and a general sense of uncertainty in the business community.
http://news.investors.com/article/613992/201206062053/recession-didnt-cause-slow-recovery.htm?p=full
It's an argument the head of Obama's Council of Economic Advisers made last week, after the U.S. created just 69,000 jobs in May, and unemployment remained stuck above 8% for the 40th month in a row.
"There is much more work that remains to be done to repair the damage caused by the financial crisis and deep recession," wrote Alan Krueger.
Obama himself has used this excuse. "From the moment we first took action to prevent another Great Depression, we knew the road to recovery would not be easy; we knew it would take time," he said last week.
But the history of economic cycles suggests that the exact opposite should have happened.
"Typically following a recession, the economy rebounds strongly," Richmond Federal Reserve President Jeffrey Lacker noted in the bank's quarterly journal.
Bigger They Fall...
What's more, deeper recessions tend to produce strong recoveries.
"You can't find a single deep recession that has been followed by a moderate recovery," Dean Maki, chief U.S. economist at Barclays Capital, said back in August 2009.
The 1957-58, 1973-74 and 1981-82 recessions were the sharpest post-war slumps until the Great Recession. From those lows, the economy rose 15%, 18.5% and 19.6% over the next 11 quarters, respectively, vs. just 6.8% for the Obama recovery.
The president and his economic advisers also initially expected a solid recovery this time around.
Obama's first budget in February 2009, forecast "rapid growth" that "is expected to push down the unemployment rate ... to 5% by the end of 2013." That month, Obama told the public that the $830 billion stimulus plan would "ignite spending by businesses and consumers" and "usher in a new wave of innovation, activity and construction."
The administration's August 2009 budget update claimed that "once the recovery takes hold, it is expected to gain momentum as time passes."
And as the true depth of the recession became clear over the next several months, the White House continued to promise a solid recovery.
Hiring Never Boomed
Obama's next budget in February 2010 predicted 3.8% real GDP growth in 2011 and 4.3% in 2012. The White House Council of Economic Advisers that year touted the "rapid turnaround in growth" in 2009 as "remarkable" and "impressive."
"Much more work remains," said Alan Krueger, the White House's chief economic adviser. AP View Enlarged Image
And in June 2010, Obama said "our economy is getting stronger by the day."
The administration wasn't alone in expecting a solid recovery. The Congressional Budget Office in 2009 projected growth rates of 4% or above starting in 2011.
IHS Global Insight chief economist Nariman Behravesh wrote in November 2008 that "in my view the recession will be deep — but the recovery is also likely to be strong."
Reuters reported in September 2009 that strong retail sales offered "hope for a solid recovery from a severe recession" and noted that some analysts expect "the economy could enjoy a quick recovery from the slump that started in December 2007."
And in April 2010, First Trust Advisors economists Brian Wesbury and Robert Stein argued that "the economic data clearly trace out a V-shaped recovery."
The connection between large contractions and big expansions is simple enough. Nobel Prize-winning economist Milton Fried man likened it to a plucked guitar string. The further down you pull it, the faster it will snap back. Research since has generally affirmed the connection.
Yet, as IBD reported recently, despite the fact that the 2007-2009 recession was very deep, the current recovery has been uniquely anemic. In fact, growth rates for the current expansion have been well below the average set by the previous 10 recoveries.
So why, then, has this recovery been so unusually weak?
Credit Crisis Impact?
According to some economists, it's because the recession was caused by a financial crisis, which they argue tends to produce more sluggish economic recoveries.
"As the economists Ken Rogoff and Carmen Reinhart have written, recoveries that follow financial crises are typically a hard climb," Treasury Secretary Timothy Geithner stated in an August 2010 op-ed.
But others have challenged this contention. A September 2011 Atlanta Fed paper concluded that the history of recessions in the U.S. offers "no support" for the claim.
And a November 2011 paper by economists at Rutgers University and the Cleveland Fed found that "recessions associated with financial crises are generally followed by rapid recoveries."
Cure-All Or Poison
Some on the left blame the lack of adequate stimulus for the recovery's tepid pace. Former Obama economic adviser Larry Summers this week called for still more borrowing.
Those on the right blame Obama's own policies for slowing the recovery down, pointing to the substantial increase in the national debt, the growth of costly new regulations, the threat of new taxes, the impending ObamaCare mandates, and a general sense of uncertainty in the business community.
http://news.investors.com/article/613992/201206062053/recession-didnt-cause-slow-recovery.htm?p=full
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