The U.S. Recovery Has Been Spectacular*

By Matthew O'Brien

*Compared to almost every other rich country and almost every other financial crisis


We need a real recovery. That's what Mitt Romney said during the campaign, and he was right. Five years since the start of the Great Recession, unemployment is still far too high. It's not for a lack of optimism among policymakers. As Evan Soltas pointed out, the Federal Reserve keeps predicting that prosperity is just around the corner, only to find it's not. Catchup growth is the new Godot.

Depressed? Well, if it's any consolation, it could be far worse. Just look at Britain. Or the euro zone. Or Japan. The chart to the right from Ryan Avent of The Economist compares how these rich economies have fared since the Great Recession hit. Notice the United States is the only economy of the bunch ahead of where it was in late 2007.

American policymakers have simply done less harm than their counterparts abroad. Not that our policy has been perfect. Austerity at the state and local level and not aggressive enough monetary policy have put too low a speed limit on our recovery. But at least we've avoided British-style austerity and Japanese-style tight money -- or both, like Europe.

If you want to feel even better about our subpar recovery, just look at how it compares to other recoveries from financial recoveries. As Ken Rogoff and Carmen Reinhart have famously demonstrated with eight centuries of data, these recoveries are almost always frustratingly slow. The chart below, from my colleague Derek Thompson, shows just how much better we're doing this time around compared to the other big crises of the past century.


U-S-A, U-S-A? Not so fast. There's a dangerous fatalism in cheering for doing better than the century's worst economic catastrophes. Financial crises do not doom us to weak recoveries -- or at least not this weak. They've historically been anemic because it takes steps so radical to counteract them that policymakers blanche. In other words, you need big deficits, big money-printing, and big debt writedowns to reverse the damage from a financial meltdown. It was different this time, or it could have been, because we knew all of this. This was the hard-won knowledge of the decades following the Great Depression. Forgetting less of this than others is little reason to celebrate. And, as Joe Weisenthal of Business Insider points out, there will be even less reason to celebrate if we forget even more by setting off the austerity bomb that is the fiscal cliff.

Now, there is a counterargument. Maybe it wasn't politically possible to get a bigger stimulus or get mortgage writedowns. Maybe this is as good as it gets. Maybe. But that depressing possibility isn't much solace for the millions who have been out of work for a year or more. We can do better.

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