Quick -- what was the last big financial crisis in the US? If you said The Great Depression, you get prize (in inflation adjusted dollars). So, given that we've just experienced a big financial crash (the popping of a very large credit and asset bubble), what would be the first place in economic history you'd look to make comparisons to the present recovery? The Great Depression -- again, you get a prize.
So -- what is it with conservative economists and their deliberate attempt to completely overlook the Great Depression comparison to our current recovery? It's like there's a blind spot in their analytical abilities which prevents them from even mentioning this period in history.
Let's start with John Taylor -- WSJ editorial page darling and one of four authors of the Mitt Romney economic manifesto. Once again, Taylor compares the current recovery to the 1980s recovery. Of course, the two are entirely different fact patterns, with the 1980s recession caused by the Fed spiking interest rates to kill inflation, while here we're dealing with a massive de-leveraging of the household sector. As I've pointed out before (see here and here) Taylor has a habit of doing anything to demonstrate his unadulterated fealty to the Reagan myth (BTW: Reagan's dead, you're old; get over it.). Your absolute devotion is noted, although it's not helping your reputation.
And now -- not to be outdone in demonstrating the absolute highest level of stupidity -- is John Cochrane, who argues that slow recoveries after a financial crisis aren't the norm because the Administration's Budget Proposals proposed a faster than normal recovery from the 2008 financial crisis. First, raise your hand if you think this is an economic document or a political document (hint: the source of the writing may be a more than insignificant clue). Secondly, when was the last time you say a government agency involved in the economy say, "things are really going to suck for awhile." In fact, what they really say is things like, "below trend growth," or "we expect sub-par demand." Why? Because they have to instill confidence in the markets that they have a handle on what's happening. And then there's the fact the the original estimates for the depth of the recession were way too shallow:
The Bureau of Economic Analysis, the agency charged with measuring the
size and growth of the U.S. economy, initially projected that the
economy shrank at an annual rate of 3.8 percent in the last quarter of
2008. Months later, the bureau almost doubled that estimate, saying the
number was 6.2 percent. Then it was revised to 6.3 percent. But it
wasn’t until this year that the actual number was revealed: 8.9 percent.
That makes it one of the worst quarters in American history. Bernstein
and Romer knew in 2008 that the economy had sustained a tough blow; t
hey didn’t know that it had been run over by a truck.
And finally, compare the budget projections in the 2003 Economic Report to the President (see table 1.1) with the actual performance. The Report's projections are off between .5% and 1% for the recovery -- and you really don't want to go into a comparison of the mammoth numbers of jobs promised versus what was really delivered, do you? In short, this isn't the first administration to over-promise and under-deliver.
Memo to Taylor and Cochrane: you're smarter than this. No, really, you are. Please rise to the level of analysis I've come to expect from people who have supposedly studied a particular discipline in depth.
