The current U.S. economic recovery is arguably the weakest since the Great Depression. Even though the Great Recession ended in the summer of 2009, unemployment is still over 8 per cent. In fact, the past three years have seen the longest stretch of high unemployment in this country since the Great Depression.
Consider this: In the first 10 quarters of the Obama Recovery, real GDP is up a total of 6 per cent vs. 16 per cent in the Reagan Recovery. Or to put it another way, after 10 quarters of recovery, the Reagan growth rate was 6 per cent vs. Obama’s 2.4 per cent vs. 4.6 per cent for the average post-World War II expansion. Another factoid: In the 31 months of the OR, the economy added 1.8 million net nonfarm payrolls vs. 8.9 million during the RR.
But how much is the failure of Obamanomics to blame for the weak recovery? Isn’t the collapse of the housing bubble why the recovery has been so slow? That is what Obamacrat-friendly pundits keep telling me.
Well, a new study on the impact of the housing sector collapse and its aftermath gives some insight, I think, on that issue. The paper was presented today at a conference held by the University of Chicago Booth School of Business. (It was written by J.P. Morgan Chase’s Michael Feroli, Bank of America Merrill’s Ethan Harris, Amir Sufi of the University of Chicago and Kenneth West of the University of Wisconsin.)
I found this table of particular relevance:
According to this data, the current recovery lags the average of the 1975 and Reagan recoveries by 7.2 percentage points. Of that gap, the study blames 74 per cent on the housing depression. But if you just use the Reagan Recovery—which I think is apt since both the Reagan and Obama recoveries came after the two worst downturns since the Great Depression—just half the 10-percentage point gap can be explained by housing.
And the other 50 per cent of the underperformance? Don’t blame the banks. A Federal Reserve study released last November found the following:
Whether a recession is associated with a banking or financial crisis does not have a statistically significant effect on the pace of growth following recession troughs. … Banking and financial crises are associated with more severe recessions – deeper in the case of emerging market economies and longer in the case of the advanced economies – but do not appear to impose additional restraint to recoveries beyond the depth and duration.
Here’s my theory: Maybe it’s because of a temporary, $800 billion stimulus plan that didn’t perform as well as Reagan’s long-term cuts to marginal tax rates. Or while Reagan was deregulating, Obama was imposing a vast new layer of regulation on the U.S. financial and healthcare industries with the promise of more to come. Housing or not, this recovery could be a whole lot better and unemployment a whole lot lower with better policies out of Washington.
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