As John Taylor notes:
I’ve been writing about the reasons for weak recovery for two years, but the issue has heated up because of its relevance to the elections this fall.
His reasons were never very convincing, being dependent on what he calls “policy uncertainty” and he certainly does not emphasize monetary policy errors.
But he´s right about why the issue has heated up. He links to several pieces written recently. I´ll just single out the latest by Krugman who frames the issue in purely political terms:
People have been asking me for a while to respond to John Taylor’s claim that financial-crisis-induced recessions aren’t characterized by slow recovery. It’s a very convenient claim for Romney/Ryan, of course, because if true it eliminates the best excuse for lackluster performance under Obama.
I think Bill Woolsey got to the heart of the matter when he wrote:
Reinhart and Rogoff also show that a country receiving substantial foreign investment ends up in very bad shape when the investment flows are reversed. When the foreigners stop rolling over their short term government bonds and bank deposits, then the net capital outflow is going to result in a reduction in real income.
Unfortunately, they and others have been misusing their work to provide excuses for the Federal Reserve’s poor performance over the last 4 years. Rather than the true message that financial crises caused by a large sudden withdrawal of foreign investment is bad for both the foreign investors and the country losing the capital, they have turned this into a claim that a financial crisis necessarily results in a deep and persistent recession.
But as is well known, it´s election time and there´s the dictum: “It´s the economy, stupid”
Note: This was my 1000th post in a little less than 26 months, averaging more than one a day! I´ll be mostly silent for the next few weeks to complete an ongoing collaborative project with a friend. But check-in once in a while.