This Time Is Different, Again?

I’ve been fascinated by the work of Carmen M. Reinhart and Kenneth Rogoff in their book This Time Is Different: Eight Centuries of Financial Follies. They simply know more about what brings on severe financial crises and what we can realistically expect from a recovery than anyone else. Recently Republican economists have been arguing that the recovery from the current crisis is historically mild, thus blaming the Obama administration. Reinhardt and Rogoff answered once here, and Paul Krugman answers here.

But that hasn’t stopped the Republican story from spreading so Reinhart and Rogoff have answered again in This time is different, again? The US five years after the onset of subprime.  They write that: “According to our (2009) metrics, the aftermath of the US financial crisis has been quite typical of post-war systemic financial crises around the globe. If one really wants to focus just on US systemic financial crises, then the recent recovery looks positively brisk.”

How has the US done compared to previous systemic financial US crises? “On the whole, however, the conclusion would have to be that in the five years since the onset of the financial crisis the US has performed better in terms of output per capita and unemployment than in the previous crises, even if one excludes the Great Depression.”

How has the US performed against other developed countries that have suffered systemic financial crises in 2007-2008? “Although tracking worse than the countries that did not have systemic financial crises, the US output performance is, in fact, among the best of those that did.”

How about unemployment rates in the US following 2007-2008 debacle versus prior systemic crises? “The 2007 crisis is associated with significantly lower unemployment rates than both the Depression of the 1930s and the depression of the 1890s.”

As to policy they write: “Of course this does not mean policy is irrelevant. Quite the contrary, in the heat of the recent financial crises, there was almost certainly a palpable risk of a Second Great Depression. However, although it is clear that the challenges in recovering from a financial crises (sic) are daunting, an early recognition of the likely depth and duration of the problem would certainly have been helpful. It would have been helpful in assessing various options and their attendant risks. It is not our intention here to closely analyses policy responses that, frankly, may take years of analysis to sort out.”

The Obama administration obviously overpromised on the likelihood of a strong recovery in light of Reinhart and Rogoff’s analysis. But the current Republican campaign violates much of what Reinhart and Rogoff show to be true about systemic financial crises and the fact that on their measures the US has outperformed both its own economic performance in past crises and the performance of many other developed nations in this crisis.

Which brings me back to the point I often raise as my frustration with political campaigns mounts: how can we deal with our problems when we don’t realistically acknowledge them?

About Maurice T. Cunningham

Maurice T. Cunningham is Associate Professor of Political Science at the University of Massachusetts at Boston. He teaches courses in American government including Massachusetts Politics, The American Presidency, Catholics in Political Life, The Political Thought of Abraham Lincoln, American Political Thought, and Public Policy. His book Maximization, Whatever the Cost: Race, Redistricting and the Department of Justice examines the role of the DOJ in requiring states to maximize minority voting districts in the Nineties. He has published articles dealing with the role of the Catholic Church in Massachusetts politics and on party politics in the state. His research interests focus upon the changing political culture of Massachusetts.
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