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My pal Joe Weisenthal at Business Insider thinks it’s unfair to keep trotting out the infamous (Christina) Romer-(Jared) Bernstein chart from early 2009 that forecasted the impact of the $800 billion Obama stimulus plan. Again, here is the chart that shows the current 8.3% unemployment rate is way above the 6% rate R&B predicted:
Here’s what you need to realize. The original above chart comes from a document (.pdf) that was put out by White House economic advisors Christina Romer and Jared Bernstein on January 10, 2009. This was right in the throes of the recession, and this is important. At the time, things were weakening much faster than anyone could possibly realize in real time. … Even after Romer’s chart, it only looked like GDP had contracted by 3.8% in the previous quarter. It turns out, GDP was contracting at 8.9% — massively more than anyone realized at the time. Romer was working off very imperfect data.
Shorter, cut R&B a break. The recession, and thus the employment situation, was worse than anyone knew at the time.
But deep recessions are typically followed by steep recoveries, like this one for instance, where unemployment surges and then plunges:
So perhaps the R&B chart should have looked like this:
The point is that with the right response from Washington, the recovery could be much stronger than it is right now — and the unemployment rate much lower.
Oh, but aren’t recoveries after financial crises much weaker? The Federal Reserve: “Whether a recession is associated with a banking or financial crisis does not have a statistically significant effect on the pace of growth following recession troughs. … Banking and financial crises are associated with more severe recessions – deeper in the case of emerging market economies and longer in the case of the advanced economies – but do not appear to impose additional restraint to recoveries beyond the depth and duration.”
Yes, housing has been a drag, too. But you can’t blame all of the weakness on it.
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