Econintersect: In a white paper issued on 14October2012, economists Carmen M. Reinhart and Kenneth S. Rogoff rejected recent recent conclusions by various op-ed writers who have argued:
…. that in fact, the United States is “different.” International comparisons are not relevant because of profound institutional differences from other countries.
All this is interesting because the op-ed writers are Mitt Romney’s economic advisers – and the “this time is different” argument flies in the face of Reinhart and Rogoff’s now famous book, “This Time Is Different: Eight Centuries of Financial Folly” which analyzed 224 previous banking crises from around the world. The following graph is from Reinhart and Rogoff’s 14 October white paper.
According to a Bloomberg post, Carmen M. Reinhart and Kenneth S. Rogoff stated:
We have not publicly supported or privately advised either campaign. We well appreciate that during elections, academic economists sometimes become advocates. It is entirely reasonable for a scholar, in that role, to try to argue that a candidate has a better economic program that will benefit the country in the future. But when it comes to assessing U.S. financial history, the license for advocacy becomes more limited, and we have to take issue with gross misinterpretations of the facts.
The bottom line is that Reinhart and Rogoff believe that incorrect comparisons to the present situation were made from recessions not associated with financial crises.
The most recent US crisis appears to fit the more general pattern that the recovery process from severe financial crisis is more protracted than from a normal recession or from milder forms of financial distress. There is certainly little evidence to suggest that this time was worse.
Of course this does not mean policy is irrelevant. Quite the contrary, in the heat of the recent financial crisis, there was almost certainly a palpable risk of a Second Great Depression. However, although it clear that the challenges in recovering from a financial crises are daunting, an early recognition of the likely depth and duration of the problem would certainly have been helpful. It would have been helpful in assessing various options and their attendant risks. It is not our intention here to closely analyze policy responses that frankly, may take years of analysis to sort out. Rather, our aim is to clear the air that somehow the United States is different. The latest US financial crisis, yet again, proved it is not.
the entire white paper from Reinhart and Rogoff
