Another Take on Reinhart-Rogoff Controversy

The updated charts below incorporate last Friday’s release of the first quarter GDP data. They continue to tell the story of a weak recovery which, in my view, is largely due to ineffective government policy interventions. There is, of course, an alternative view: that the recovery is weak because the recession and the financial crisis were severe.

This alternative is based on research by Carmen Reinhart and Kenneth Rogoff claiming that weak recoveries typically follow deep recessions and financial crises. That claim is frequently cited by government officials as the reason why policy has not been the problem. To be sure this is not the widely-cited research by Reinhart and Rogoff on the debt-growth nexus which has generated so much controversy recently (including a parody on the Colbert Report), but it’s quite related from a policy perspective and equally controversial.

Much as Thomas Herndon of the University of Massachusetts found problems with the “debt growth nexus” result, economic historian Michael Bordo of Rutgers found problems with the “weak recovery is normal” result. Bordo wrote about his findings (which are based on his joint research with Joe Haubrich of the Cleveland Fed) in a September 27, 2012 Wall Street Journal article, “Financial Recessions Don’t Lead to Weak Recoveries.” In discussing the view that weak recoveries follow deep recessions, Bordo wrote that “The mistaken view comes largely from the 2009 book This Time Is Different, by economists Carmen Reinhart and Kenneth Rogoff…” and he then showed that U.S data disprove that view. (I wrote about this here and here).

An important question for public policy is why Bordo’s discovery got so much less press attention than Herndon’s. Maybe Bordo’s historical research is inherently less interesting than Herndon’s discovery of spreadsheet error (it’s certainly harder for Stephen Colbert to parody), but another reason is that Herndon’s findings support more fiscal stimulus and less consolidation–still popular in some quarters–while Bordo’s findings don’t.

Here are the charts:

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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