Sorry, U.S. Recoveries Really Aren’t Different….

There was some recent discussion saying US recessions are different and US recovers faster from recessions. However, this is not the case with current recession. This was mostly suggested by econs supporting  Romney and thus arguing Obama’s policies were flawed. Krugman-Taylor debate here.

Rogoff-Reinhart in this nice column refute the findings. They say two main things:

 

  • US recoveries  are not different from recessions in other economies
  • However, compared to previous US recessions growth is faster this time.

They begin citing the people who have questioned the recovery:

Recently, however, a few op-ed writers have argued that in fact, the US is ‘different’. International comparisons are not relevant because of profound institutional differences from other countries. A recent spate of op-ed writers, including Hevin Hassett and Glenn Hubbard, Michael Bordo and John Taylor, have stressed that the US is also ‘different’ in that recoveries from recessions associated with financial crises have been rapid and strong. Their interpretation is at least partly based on a study by Bordo and Haubrich (2012), which examines the issue for the US since 1880.

In this column, we question their ‘interpretation’ of the US historical track record, which is incorporated in Reinhart and Rogoff (2009), where we present results of 224 historical banking crises from around the world, including pre-2007 banking crises in the US.

Then they review the findings and data so far. It seems policy helped though research needs to understand the policies:

While no two crises are identical, there are some robust recurring features of crises that cut across time as well as across national borders. Common patterns as regards 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. This, in fact, is precisely a key if surprising takeaway from our 2009 book.

The most recent US crisis appears to fit the more general pattern that the recovery process from severe financial crisis is more protracted than from a normal recession or from milder forms of financial distress. There is certainly little evidence to suggest that this time was worse.

Of course this does not mean policy is irrelevant. Quite the contrary, in the heat of the recent financial crisis, there was almost certainly a palpable risk of a Second Great Depression. However, although it clear that the challenges in recovering from a financial crises are daunting, an early recognition of the likely depth and duration of the problem would certainly have been helpful. It would have been helpful in assessing various options and their attendant risks. It is not our intention here to closely analyse policy responses that frankly, may take years of analysis to sort out.

Rather, our aim is to clear the air that somehow the US is different. The latest US financial crisis, yet again, proved it is not.

Politicisation of claims…

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