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Reinhart & Rogoff Reply to Team Romney

Just in case you were left wanting by last night's presidential debate, here's a quick double-shot of heavy-duty substance to tide you over.

Yesterday, Bloomberg View published an op-ed by the Harvard economists Carmen M. Reinhart and Kenneth S. Rogoff. They take issue with the characterizations of their work on financial crises by economists who are either official advisers to the Republican nominee Mitt Romney, or who publicly support the candidate.

In particular, they dispute separate assertions in op-eds by Glenn Hubbard and Kevin Hassett, John Taylor and Michael Bordo that historically the U.S. has been "'different' in that its recoveries from recessions associated with financial crises have been rapid and strong." In their 2009 book, “This Time Is Different: Eight Centuries of Financial Folly,” Reinhart and Rogoff compiled data from 224 historical banking crises and concluded that -- even for the U.S. -- it takes far longer to come back from a systemic financial crisis than it does to recover from less severe episodes known as "borderline" crises.

To them, there is no question that the most recent U.S. crisis was of the systemic kind, in fact, the first of such severity since the Great Depression. Given that, they say, the "recent recovery looks positively brisk" in historic terms.

Reinhart and Rogoff are very careful to insist that they have not "publicly supported or privately advised either campaign" in this election year. Yet their data and conclusions  undermine the repeated claims by Romney and his economists that the slow growth and high unemployment of recent years are due in no small measure to President Barack Obama and his policies.

As befitting a dispute between academics, much of the argument involves questions about research methods and scholarship. Taylor, a Stanford University professor and a Romney adviser, responded to Reinhart and Rogoff with a blog post in which he defended his claim that data going back more than a century show that growth has been strong after several U.S. financial crises, the exact opposite of the Reinhart-Rogoff findings.

The trouble is that Taylor claims to have found eight previous recessions with crises: 1882, 1893, 1907, 1913, 1929, 1973, 1981 and 1990. In a short follow-up to their op-ed, "Apples and Oranges," they say that only three of the episodes listed by Taylor  should be considered legitimate U.S. financial crises -- 1893, 1907 and 1929.

All this is really wonky, but it matters -- a lot. How Americans understand their recent history could well be a central determinant of their choice at the ballot box. Some will decide Obama did the best he could with the terrible hand he was dealt and needs more time. Others will judge that he made matters worse through faulty analysis and bad policies. The facts are available.

(Max Berley is a member of the Bloomberg View editorial board. E-mail him and follow him on Twitter.)

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

    To contact the author of this story:
    Max Berley at mberley@bloomberg.net

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