John Taylor writes “A Review of Recoveries in Contrast”:
I’ve been tracking the economic recovery with charts and commentaries on this blog since it began in 2009. The simplest but most revealing charts compared and contrasted this recovery with the recovery of the 1980s.
By the recovery’s third anniversary in 2012, it was now the worst recovery from a deep recession in American history. Some still disputed that but an analysis of the data in these charts showed we clearly had a problem on our hands. In my view the problem was economic policy and I wrote First Principles to explain that view.
By the recovery’s fifth anniversary, we were so far away from the recession that linking the terrible performance to the recession became increasing far-fetched. The sarcastic sounding “not-so-great-recovery” had become a favorite label, and the “it’s policy” versus “it’s secular” debate continued.
With the recovery now approaching its sixth anniversary, there is more optimism that we are finally coming out the excruciating slow growth. There is also some wishful thinking that the drop of people out of the labor force—which has made the unemployment rate come down—is due to demographic factors not the slow growth itself. And we are not as bad as Europe.
The problem has been policy all right. But not the ones Taylor favors. As my charts indicate, the basic problem has been tight monetary policy into and out of the 2007-09 (great) recession.
The 1981-82 cycle reflected a strong desire by the Volcker Fed to “decapitate” inflation. The 2007-09 cycle was the consequence of the Bernanke Fed operating to avoid any inkling of inflation. Only this time that was “wrapped” in a financial crisis, making the ensuing recession deeper and much harder to shrug off, given the preservation of the inflation obsession.
And many increasingly lean towards tales of “secular stagnation”, the “ZLB” and the need for more “fiscal stimulus”! All the time it was the Fed botching up! And they seem eager to go on doing so, with “itching fingers” on the interest rate trigger!