In a recent “chart cast” video posted on YouTube, Russ Roberts interviewed Ed Leamer of UCLA on why the recent economic recovery has been so weak. Ed’s list of causes differs a lot from mine, which Russ discussed with me in chart cast videos Part 1, Part 2, Part 3 last year. See also the book on the recovery which Lee Ohanian (Ed’s UCLA colleague), Ian Wright and I edited.
First, Ed argues that the recent recovery is not unusually weak in comparison with the recoveries from the 1990-91 and 2001 recessions. But those recessions were much milder than the recent recession. Slow recoveries following shallow recessions are not unusual. The current weak recovery is very unusual because it followed a deep recession. This makes Ed’s focus on manufacturing declines, which are common to all three recessions, much less plausible as an explanation.
In addition, Ed’s benchmark for measuring the recoveries is a constant 3% long-term trend line. But longer term trends can vary can vary over time. The chart below uses the CBO’s trend line, which varies over time. You can see how unusual the recent recovery is.
When asked by Russ to respond to my view that the slow recovery is due to government policy (around 13:21 into the Leamer interview), Ed says I overstate the importance of government fiscal and monetary policy, and then refers to housing as a source of weakness. It is true that housing has been weak following the bust, but all recoveries have their weak sectors. In the 1980s it was exports. Moreover, housing has picked up recently, and overall growth still is quite slow. Going forward, few are predicting the kind of growth rates seen after previous deep recessions.