Martin Wolf:
A slow convalescence under Obama: [W]e have no reason to regard the performance of the US economy under President Obama as poor, given the conditions he inherited. But this does not mean that recovery could not have been far stronger. Policy was insufficiently supportive of a stronger recovery. That is partly because the administration underestimated the forces for contraction. It is still more because of the opposition of the Republicans to any stimulus. In an economy afflicted by the implosion of a huge credit boom, the forces for contraction were bound to be both strong and enduring. With interest rates at zero, the effectiveness of monetary policy was limited. Given this, the American Recovery and Reinvestment Act, which amounted to an average of a little under 2 per cent of GDP in the years it was effective, was plainly too small.
The great achievement of policy was to limit the severity of the post-crisis recession. This is largely due to the Federal Reserve and the decision to prevent a financial collapse in the autumn of 2008. But it is also due to sensible, albeit limited, action by the administration. Moreover, by historical and international comparisons, the US economy has performed quite well. Focusing on the recovery, without looking at the contraction, is clearly misleading. Finally, to the extent that the recovery was not stronger, the obstructionism of Republicans in Congress has to bear a sizeable part of the blame. But the big question is: what comes next? Who has the policies to ensure a strong and sustained US recovery? I intend to examine that question next week.
And Wolf on John Taylor:
[I]s he right? The answer is: no…. The first question is whether Prof Taylor is comparing like with like. Against him is widespread agreement that the aftermaths of systemic financial crises are worse than those of more normal downturns…. The second question is whether speed of recovery is a good measure of success. The answer is: no.
