Illustrated by this graph from the Minneapolis Federal Reserve, sometimes one orange line can create a huge debate.
The thick orange line representing the US recovery from the December 2007-June 2009 recession reflects a tepid ascent next to curves that represent other post-WW II economic recoveries. Still though, Democrats say the numbers reflect progress while Republicans call them poor. How can we decide?
Looking at several academic papers, it gets ever more confusing. Some policy makers and scholars believe that the recovery is typical. Explaining that it takes a long time to bounce back from a recession connected to a financial crisis, they say the trajectory of this recovery is what we should expect. Disagreeing, other equally auspicious individuals use their data to prove that financially related deep recessions actually precede robust economic growth.
The disagreement takes us to the data. Should the US be compared to other culturally and institutionally different countries or should the data just focus on US economic history? Is is more valid to look at how how long it takes to return to pre-crisis output levels or how fast the economy grows during its recovery? Do we look at per capita or overall figures?
If you would select the first half of each question in the previous paragraph, then the recently announced 2% growth rate for the 3rd quarter of 2012 is progress. If, on the other hand, your preference is the second choice, you can say that current numbers should be better. And as you can see, Obama likes the former and Romney the latter.
A Final Fact: Just 2 definitions today.
- A recession: Technically, a recession is a decline in real GDP for 2 successive quarters. The people who decide the dates of recessions, the NBER (National Bureau of Economic Research), say that they take into consideration additional variables including real income, employment and industrial production.
- GDP: Most simply stated, the Gross Domestic Product is the total dollar value of the goods and services produced in a country during a specific time period.
Sources and Resources: Replete with data and ideas about financial crises, recessions, and recoveries, Kenneth Rogoff’s and Carmen Reinhart’s 2009 book and their paper, “This Time Is Different,” say that recoveries from systemic financial crises take a long time. Much more briefly, in his blog, John Taylor disagrees with the Rogoff/Reinhart approach as do Michael Bordo and Joseph Haubrich in this Cleveland Federal Reserve paper. Also, you might enjoy manipulating the interactive graphs from the Minneapolis Fed. Finally, here and here is the actually debate unfolding with Carmen Reinhart and Kenneth Rogoff on one side and John Taylor and Michael Bordo on the other.
Election Economics Topics:
- The Economics of Foreign Policy: 10/22
- Too Much or Not Enough Stimulus Spending: 10/15
- Social Security: 10/8
- Facts for the First Debate: 10/1
- How Sick is the Economy? 9/24
- Keynesian Economics: 9/17
- Tax Matters: 9/10
- More of the Jobs Story: 9/3
- Aging Challenges: 8/27
- A Healthcare Overview: 8/20
- Paul Ryan and economist Friedrich von Hayek: 8/13
- Unemployment: 8/6
- Minimum Wage: 7/30
- Dodd-Frank: 7/23
- Outsourcing: 7/16