In his speech at the Democratic National Convention, Bill Clinton - in that hectoring, finger wagging way of his ("listen to me") - told us that no President could have "fixed" the economy in one term.
even he could have done it.
History suggests he's wrong. We have a relatively recent example of a
strong recovery from a very deep recession in one Presidential term.
There may well have been at least one President who could have "fixed"
this in four years.
The economic downturn of 1981-1982 may not have been quite as bad as
that of 2007-2009 (although by some measures it was worse), but it was
very deep. Unemployment reached 11%. The recovery was far more - and I mean far more - robust
than what we have seen during the past three years. The growth rate was over twice what it has been over the past three years and the percentage of persons participating in the labor force rose sharply. Since the downturn of 2008-09, it has remained flat. In other words, measured by the percentage of people working, there has been no recovery at all.
But there's more. It turns out that the central premise of the Clinton/Obama defense of the administration's poor economic record may he ahistorical and wrong.
The story is told graphically by Stanford economist John Taylor in a
"chartcast" produced with George Mason economist Russ Roberts (who is also a research fellow at Stanford's Hoover Institute). The central point being made by the Democrats is that the recovery has been so weak because the recession was so deep. The worse things get, they say, the more slowly they get better.
Taylor and Roberts show that this is not necesssarily so. It is simply not
true that deep economic downturns are followed by slower recoveries.
In fact, just the opposite seems to be the case. Taylor and Roberts
point out that the deeper the recession, the stronger the recovery may be.
They refer to Nobel laureate Milton Friedman's "plucking" model for the business cycle. Friedman used a guitar string as a metaphor. The harder you pull on it, the
harder it reverberates and "bounces back."
There is some practical wisdom behind this. A deeper downturn will
result in lower inventories, more deferred consumption, heavier
reductions in employment such that, when a recovery begins, there is far
Of course, we can think of reasons why a recovery may not proceed in
this way. Indeed, it would be overly simplistic to suggest that a hard fall is always going to be followed by a rapid rise. The point is that Clinton's argment - while superficially logical - may not hold water. Taylor and Roberts show, American recoveries
often proceed in a very different way and, in our more recent years, milder
recessions have been followed by milder recoveries.
There are two implications for the President's
re-election bid. First, this illustrates the weakness of the
Presidents' "well, I stopped the recession"
argument. Recessions end quite apart from governmental intervention. In
fact, they tend to create the conditions for their own end. Inventories
get drawn done and need to be replaced. Work forces can be reduced no
more. While I suppose things could get worse in perpetuity, that tends
not to be what happens.
So the real questions are, not whether there has been a recovery, but what kind of recovery it has been and
how have the administration's policies helped or hindered it. The
answer to the first question is easy. The recovery of the past several
years has been the worst of the post war era.
The answer to
the second question will be a matter of dispute but we can say this. The
President has spent an awful lot of money and left the country in
materially worsened fiscal shape. We have little to show for it. To say
"well, it could have been worse" and "no one could have done better' is
unfalsifiable. It is also implausible.
Second, Taylor and Roberts blow apart the "it's not my fault" theme on which the President is running for relectioon. When Bill Clinton
says that even he could not have done better and that "no President"
could have, he's - at best - half right. The so-called "Clinton
recovery" actually began when George H.W. Bush was still in office. As I
blogged last week, much of what Clinton did right - spending restraint
and the absence of grandiose policies - was forced on him by a GOP Congress.
He didn't have the votes to do otherwise. As a result, the policies
that were actually implemented were nothing like what President Obama
wants to do. It may well be that "even he" could not have done better.
But someone else might have. The deep recession of 1981-1982 was followed by an extremely robust recovery.
The President, as I said before, was Ronald Reagan.
Cross posted at Purple Wisconsin