Reinhart, Rogoff Say Romney Advisers Understate Crisis Severity

The slow U.S. economic recovery is characteristic of recessions caused by financial crises, according to Harvard University economists Carmen Reinhart and Kenneth Rogoff, who disputed analyses by advisers to Mitt Romney who say the recent American experience is different.

“The aftermath of the most recent U.S. financial crisis has been quite typical of systemic financial crises around the globe in the postwar era,” Reinhart and Rogoff wrote in a Bloomberg View column. “If one really wants to focus just on U.S. systemic financial crises, then the recent recovery looks positively brisk.”

The severity of the crisis is a subject of debate among economists during this year’s presidential election campaign. President Barack Obama, explaining persistent unemployment and slow growth, says he inherited an economy in a tailspin. Romney and his advisers blame Obama’s economic policies.

Romney told CNN in an interview last week that “it’s pretty clear that the economy is not growing at the rate it should be under the president.” The first point Obama made at the candidates’ Oct. 3 debate in Denver was that “four years ago we went through the worst financial crisis since the Great Depression.”

In an opinion article published Aug. 15 in the Washington Post, Romney advisers Glenn Hubbard and Kevin Hassett said Obama’s “excuse” that recoveries after financial crises are always slow is inaccurate because “economists who have looked at U.S. recoveries after financial crises have generally found that the recoveries have not been slow.”

Taylor Blog

Another Romney adviser, Stanford University Professor John Taylor, wrote in his blog Oct. 11 that data going back more than a century show that growth has been strong after several U.S. financial crises.

Reinhart and Rogoff, authors of the 2009 book “This Time is Different: Eight Centuries of Financial Folly,” compared the latest recovery to four similar episodes in U.S. history: the crises of 1873, 1893 and 1907, as well as the Great Depression.

Five years after the onset of the subprime crisis in 2007, per capita gross domestic product remains below its initial level and unemployment is close to 8 percent, the two economists wrote in yesterday’s article.

“Rather than the V-shaped recovery that is typical of most postwar recessions, growth has been slow and halting,” the economists wrote. “This disappointing performance shouldn’t be surprising.”

After the panic of 1907, real per-capita GDP didn’t return to its 1906 level until six years later, according to Reinhart and Rogoff. The unemployment rate climbed to 8 percent in 1908 from 1.7 percent in 1906, and it didn’t return to the pre-crisis low until 1918.

2012 Study

In their article, Reinhart and Rogoff said the Romney advisers’ conclusions were at least partly based on a 2012 study by Michael Bordo, a professor of economics at Rutgers University in New Brunswick, New Jersey, and Joseph Haubrich, an economist with the Federal Reserve Bank of Cleveland. Bordo and Haubrich found that recessions associated with financial crises are generally followed by rapid recoveries.

Hubbard, in an e-mail today, said he didn’t understand Reinhart and Rogoff’s criticism of his article with Hassett, “as our main point was that the Obama administration cannot, ex post, appeal to Reinhart-Rogoff, as the administration has (each year) forecast a sharp recovery just around the corner.”

Asked to comment on the Reinhart-Rogoff article, Taylor referred to his blog. Hassett said he had nothing to add because the debate is between the Harvard economists and Bordo and Haubrich.

Defining Recovery

Bordo said the main difference between his research with Haubrich and that of Reinhart and Rogoff lies in the definition of a recovery.

Reinhart and Rogoff focus on real per capita GDP from the peak preceding the crisis to the point in the recovery when the earlier peak is reached, Bordo said in an e-mail today. “We look at what is called the bounce-back, the pace of recovery from the trough of the business cycle.”

Hubbard is dean of Columbia University’s business school and Taylor served as Treasury undersecretary for international affairs in the administration of George W. Bush. Hassett is director of economic policy studies at the American Enterprise Institute in Washington.

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