It’s Still a Recovery in Name Only–A Real Tragedy

I have been regularly charting the path of real GDP and employment during the recovery from the recession as new data are released. From the start it was clear that the recovery was very weak. By its second anniversary the recovery was weak for long enough to call it “a recovery in name only, so weak as to be nonexistent.” Now we are just past the third anniversary, and it is still at best a recovery in name only. It’s now the worst in American history—a tragedy that should not be minimalized.

Here’s an update of the charts using the latest data through the second quarter or through July for monthly data. The first one shows real GDP in this recovery. You can see that the gap between real GDP and potential GDP (CBO estimates) is not closing at all. That is the main reason why unemployment remains so high.

Second is the comparison chart with the recovery from the previous deep recession in the early 1980s.That is a typical recovery from a deep recession. The gap closes.

Some say that recoveries from deep U.S. recessions–or from financial crises–are usually slower, but this is simply not true. Below are similar charts from the 1893-94 recession.

And from the 1907 recession.

Both associated with severe financial crises. You can see the sharp rebounds, nothing like the terrible recovery we have seen recently. This does not imply that the period after these recoveries was smooth; indeed a double dip followed the recovery in the early 1890s.

Of course potential GDP is difficult to measure so it is important to look at alternative charts. The next one used GDP growth rates. The average real GDP growth rate in this recovery has been only 2.2 percent, even lower than the 2.4 percent before the data were revised.

Finally, with today’s July employment numbers you can see the extraordinarily weak employment record in this recovery. The employment-to-population ratio is still lower than at the start of the so-called recovery. We now know that it fell in July as shown in the lower right part of the chart.

About John B. Taylor 117 Articles

Affiliation: Stanford University

John B. Taylor is the Mary and Robert Raymond Professor of Economics at Stanford University and the Bowen H. and Janice Arthur McCoy Senior Fellow at the Hoover Institution. He formerly served as the director of the Stanford Institute for Economic Policy Research, where he is now a senior fellow, and he was founding director of Stanford's Introductory Economics Center.

Taylor’s academic fields of expertise are macroeconomics, monetary economics, and international economics. He is known for his research on the foundations of modern monetary theory and policy, which has been applied by central banks and financial market analysts around the world. He has an active interest in public policy. Taylor is currently a member of the California Governor's Council of Economic Advisors, where he also previously served from 1996 to 1998. In the past, he served as senior economist on the President's Council of Economic Advisers from 1976 to 1977, as a member of the President's Council of Economic Advisers from 1989 to 1991. He was also a member of the Congressional Budget Office's Panel of Economic Advisers from 1995 to 2001.

For four years from 2001 to 2005, Taylor served as Under Secretary of Treasury for International Affairs where he was responsible for U.S. policies in international finance, which includes currency markets, trade in financial services, foreign investment, international debt and development, and oversight of the International Monetary Fund and the World Bank. He was also responsible for coordinating financial policy with the G-7 countries, was chair of the working party on international macroeconomics at the OECD, and was a member of the Board of the Overseas Private Investment Corporation. His book Global Financial Warriors: The Untold Story of International Finance in the Post-9/11 World chronicles his years as head of the international division at Treasury.

Taylor was awarded the Alexander Hamilton Award for his overall leadership in international finance at the U.S. Treasury. He was also awarded the Treasury Distinguished Service Award for designing and implementing the currency reforms in Iraq, and the Medal of the Republic of Uruguay for his work in resolving the 2002 financial crisis. In 2005, he was awarded the George P. Shultz Distinguished Public Service Award. Taylor has also won many teaching awards; he was awarded the Hoagland Prize for excellence in undergraduate teaching and the Rhodes Prize for his high teaching ratings in Stanford's introductory economics course. He also received a Guggenheim Fellowship for his research, and he is a fellow of the American Academy of Arts and Sciences and the Econometric Society; he formerly served as vice president of the American Economic Association.

Before joining the Stanford faculty in 1984, Taylor held positions as professor of economics at Princeton University and Columbia University. Taylor received a B.A. in economics summa cum laude from Princeton University in 1968 and a Ph.D. in economics from Stanford University in 1973.

Visit: John Taylor's Page, Blog

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