I’ve posted a number of charts like the one at top showing how much worse the current employment recovery is than the recoveries following previous recessions since World War Two. But the second chart provides another and maybe more meaningful comparison—the U.S. recovery versus employment recoveries in foreign nations following financial crises. The current U.S. recovery is not out of line with the experience of foreign nations.
The most significant comparison, though, is with the current U.S. recovery, shown by the thick red line, with the aftermath of the 1929 stock market crash, shown by the dotted black line. What it indicates to me was that the United States was on a slide toward another Great Depression, like that of the 1930s, but that the slide was prevented by the bank bailouts and the Obama stimulus plan.
I’ve criticized the Obama administration for failing—really, not seriously attempting—to put anything in place that would prevent a repetition of the recent financial crash. The Obama administration has blocked prosecution of financial fraud and meaningful legislation to regulate or break up the “too big to fail” banks, while the Federal Reserve Board, through its Qualitative Easing programs, has given money to the big Wall Street banks at near-zero interest rates without any requirement that the money be lent in the real American economy. I think the United States is on track for a bigger crash and a bigger bailout, if indeed a bailout is possible the next time around.
But give credit where credit is due. The swift action of the Bush administration, the teamwork of the Bush and Obama administrations during the transition, and Obama administration’s follow-through prevented a collapse of the financial system, and the Obama stimulus plan also helped shore up the economy. I can’t prove this. There is no way to turn back the calendar and see what would have happened with no bailout and no stimulus, but I think the Hoover administration’s experience after 1929 provides a good indication of what would have happened. But now that the collapse has been averted, the U.S. government and banking system is busy recreating the circumstances that led to the collapse in the first place.
Click on Does this graph prove the recovery has been impressive, after all? for the thoughts of Ezra Klein on the Washington Post’s Wonkblog.
Click on Checking In on Financial Crisis Recoveries for the source of the chart in a report by Josh Lehner of the Oregon Office of Economic Analysis.