Saturday, 20 October 2012

US recessions and the current US recovery

I wrote about the recession here for the UK. In the US, Krugman and Taylor are having an argument:

1. Taylor says the US recovery is very weak relative to that from other financial crises, and blames policy.
2. Krugman says this is politics and the US recession is just what you would expect from a financial crisis.

Reinhardt and Rogoff have this graph:

Reinhart: Fig 1

There are two questions:
Q1.  is the US recovery, starting from the bottom of the cycle, currently slower than the 1930s?
Looking at the slope of the 2007 line starting from the bottom of the V, it grows slower than the wide dotted line, but about the same/faster as the small dotted line.   As Jim Hess has correctly pointed out to me, correcting an earlier mistake, the wide dotted line excludes the 1930s, and the narrow one includes it.  So the 1930s must have been slower recovery and hence current recovery is faster.  Score one for Krugman.

Q2.  are US recessions, starting from the peak, longer to get back to the peak, when they are financial crises?  Yes they are, according to Reinhardt/Rogoff  comparing different recessions according to type.  Score one for them and Krugman.

So its two different questions being compared.