The Reasons Behind the Obama Non-Recovery
24th September 2016
The Obama administration and some economists argue that the recovery since the Great Recession ended in 2009 has been unusually weak because of the recession’s severity and the fact that it was accompanied by a major financial crisis. Yet in a recent study of economic downturns in the U.S. and elsewhere since 1870, economist Tao Jin and I found that historically the opposite has been true. Empirically, the growth rate during a recovery relates positively to the magnitude of decline during the downturn.
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Arguing that the recovery has been weak because the downturn was severe or coincided with a major financial crisis conflicts with the evidence, which shows that a larger decline predicts a stronger recovery. Moreover, many of the biggest downturns featured financial crises. For example, the U.S. per capita GDP growth rate from 1933-40 was 6.5% per year, the highest of any peacetime interval of several years, despite the 1937 recession. This strong recovery followed the cumulative decline in the level of per capita GDP by around 29% from 1929-33 during the Great Depression.