Wednesday, October 17, 2012

Reinhart and Rogoff on U.S. recovery

Another helpful post by Ezra Klein leads us to a discussion of the recent recession and recovery in historical context, courtesy of Carmen Reinhart and Ken Rogoff, who also provide an apples-to-oranges rebuttal of a recent blog post by John Taylor.

It's hard to disagree with either Reinhart and Rogoff that the level of GDP (per capita) is ultimately what we really care about, or with Taylor's implicit point that to get a higher level you need a faster growth rate during recovery. The level of GDP has remained low, unemployment high, and the growth rate of GDP hasn't been very rapid following this recession. But I think the time series graphs of levels of GDP provide a more compelling comparison than Taylor's growth rates.

It reminds me of how mystified undergraduates often feel in intermediate macroeconomics when they learn that growth is rapid in the neoclassical model following a cataclysmic destruction of capital.  I think their basic intuition, about why that's almost beside the point, is noteworthy.