The Great Recession began exactly one decade ago this month, as later determined by the NBER business cycle dating committee chaired by my colleague, Bob Hall. There is still a great debate about the causes of the Great Recession, its deepness, its length, and the Not-So-Great Recovery that followed. But there is no question that the economic growth rate over the past ten years has been dismal—only 1.4 percent per year on average. A chart of the ten-year moving average of growth rates tells the story. Let’s hope the new decade that begins tomorrow will be a happier new decade for economic growth in the United States.
I still think the explanation in my 2009 and 2012 books Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis and First Principles: Five Keys to Restoring Americas Prosperity are basically correct, and I am encouraged that there has been a turnaround recently in regulatory policy and tax policy.
But more investigative research into real-time records of policy actions is essential to determine what went wrong during the past decade. A good example is the new book, forthcoming in 2018, The Fed and Lehman Brothers: Setting the Record Straight on a Financial Disaster, by Larry Ball which investigates the records and uncovers inconsistencies in the government’s story of its role in the panic of 2008. He shows that the Fed could have legally prevented the chaos surrounding the Lehman bankruptcy, but didn’t do so either because of political concerns or a botched implementation of its game plan.
It is also essential to review and assimilate all the policy research that has been done in the past decade, both inside and outside of government institutions. In this regard, also ten years ago this month we created an Economic Policy Working Group at the Hoover Institution with the express purpose of doing policy-related research on the crisis, focusing on the change in policy that many of us—including George Shultz, John Cogan, Darrell Duffie, Michael Boskin, Ken Scott—saw had begun a few years before. The group has grown and now includes many more economists, including John Cochrane and Josh Rauh who moved from the University of Chicago. The 160 policy meetings and conferences organized by this Working Group have been the source of many papers and books including the early research work on stimulus packages, quantitative easing, bankruptcy reform, international monetary reform, and, most recently, John Cogan’s The High Cost of Good Intentions. To aid in communication and assimilation, brief summaries of all the meetings were written and collected in real time and are available here on the Hoover website here. Some of the recent summaries by John Cochrane are very thoughtful essays on their own right.