Mary Matelin is a paid Republican operative just like her husband James Carville is a paid Democratic operative. She makes the often recited claim that America is currently experiencing “the worst recovery in history”. Paul Krugman corrects her on ABC’s This Week With George Stephanopoulos this morning. It is important for you to understand – history has shown that a financial crisis due to the banking sector is very, very different from your standard recession. Financial Crisis like the implosion of the banking sector we experienced are much more severe, much more painful. And history has shown – that we are doing much, much better than most countries in history relative to this type of crisis.
The Senate Republican Policy Committee calls it the “worst recovery in history” HERE. And many Republicans have repeated this claim. Nevermind that since January of 2010 – we have seen an increase of 5.2 million private sector jobs. You know – facts.
Carmen Reinhert - Professor of the International Financial System at Harvard Kennedy School - and Kenneth Rogoff - Professor of Public Policy and Professor of Economics at Harvard University - prepared a presentation for the American Economic Association which they presented on January 3rd, 2009 before President Obama was sworn into office. At that time – they specifically focused on the impact and severity of financial economic crisis like the Bush Economic Crisis and the Great Depression and compared them to other worldwide financial crisis.
They share this chart in their presentation which shows the AVERAGE % increase in unemployment for financial crisis is 7%. The recession started in December of 2007; the unemployment rate was 5.0% (source). Unemployment rose 5.1% to 10.1% on the high end (source); that’s not only not the worst recovery in history … it’s significantly better than the average response. Had unemployment grew to the average under financial crisis – we would have hit 12%.
Remember – this report was written BEFORE Obama was even sworn into office. Another interesting chart that they shared was the impact on public debt … or the deficit. The average country that experienced a banking crisis like we experienced saw an increase in public debt of 86%. America is doing significantly better than that. If you start with the Banking Crisis in September of 2008 under Bush to September of 2011 – the deficit rose 50%. If you use March 2009 to March 2012 – the deficit rose 42%. That would be half of the deficit that the average banking crisis experienced.
You can find their paper HERE; their conclusion:
An examination of the aftermath of severe financial crises shows deep and lasting effects on asset prices, output, and employment. Unemployment rises and housing price declines extend out for five and six years, respectively.
On the encouraging side, output declines last only two years on average. Even recessions sparked by financial crises do eventually end, albeit almost invariably accompanied by massive increases in government debt.
How relevant are historical benchmarks for assessing the trajectory of the current global financial crisis? On the one hand, the authorities today have arguably more flexible monetary policy frameworks, thanks particularly to a less rigid global exchange rate regime. Some central banks have already shown an aggressiveness to act that was notably absent in the 1930s, or in the latter-day Japanese experience. On the other hand, one would be wise not to push too far the conceit that we are smarter than our predecessors. A few years back many people would have said that improvements in financial engineering had done much to tame the business cycle and limit the risk of financial contagion.
Since the onset of the current crisis, asset prices have tumbled in the United States and elsewhere along the tracks laid down by historical precedent. The analysis of the post-crisis outcomes in this paper for unemployment, output, and government debt provide sobering benchmark numbers for how the crisis will continue to unfold. Indeed, these historical comparisons were based on episodes that, with the notable exception of the Great Depression in the United States, were individual or regional in nature. The global nature of the crisis will make it far more difficult for many countries to grow their way out through higher exports, or to smooth the consumption effects through foreign borrowing.
But just looking at the American recovery … it’s simple to understand. As we have shown HERE – unemployment is improving:
And MaddowBlog shows the newest updated “bikini graph” updated through September of 2012 HERE:
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