11/05/2012

New Op-ed piece: The financial crisis can't explain the current slow recovery

My newest piece is with Jerry Dwyer and James Lothian and starts this way:
Carmen Reinhart and Kenneth Rogoff’s book, “This Time is Different,” has become the bible of the Obama administration. Their claim that recoveries after financial crises are naturally much slower than other recoveries has given President Obama a lot of cover. Their argument may be widely accepted by the media but has not been so readily accepted by economists. 
Reinhart and Rogoff lashed out at academic critics a couple of weeksago with an opinion piece in Bloomberg and again recently on CNN, attacking economists who disagree with them as blinded by support for Mitt Romney. 
Our current recovery has been the weakest since at least World War II. Thirty-nine months since the recovery started in June 2009, job growth has been only 2 percent. During the average recovery since 1970, job growth over the first 39 months has averaged over 8 percent. The current recovery has failed to keep up with the growth in the working age population. Unlike past recoveries, much of the drop in the unemployment rate simply reflects people giving up looking for work. And there is no doubt there was a financial crisis. 
But the financial crisis is not the explanation for the slow recovery. . . . .

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3 Comments:

Blogger Scottie said...

I'd be interested to know your thoughts on why the US economy is recovering so much better than the UK economy. as you're aware we've only just come out of recession thanks to the Olympics falling at the right time.

I just don't buy the fact that the UK is hit more strongly by the Euro-crisis than the States as it doesn't seem to have had such a dragging impact on the German economy.

11/06/2012 6:11 PM  
Blogger Mark said...

I find most compelling the so-called market monetarists' explanations for the recession: that the Fed was still worried about inflation as the main risk after Lehman imploded and thus was way, way, way behind the curve in making monetary policy easier in order to help offset the huge negative shock to the system which had occurred. I also believe their proposition (and apparently Milton Friedman's) that low interest rates are not necessarily a sign of easy money but may in fact reflect the opposite (i.e., Japan).

11/07/2012 9:23 AM  
Blogger John Lott said...

Dear Scottie:
Thanks for your note. Actually, the drop in employment since the beginning of the Obama administration has actually been much worse in the US than in the UK. In the US the percent of the working age population employed fell by 3%. In the UK it is less than 1 percent.

11/08/2012 12:43 AM  

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