Fox Gets It Wrong: Recessions Following Financial Crises Are More Severe And Longer Lasting Than Ordinary Recessions
Research ››› ››› EMILY ARROWOOD
Fox hosts downplayed the severity of the recession and whitewashed the financial crisis after President Obama reminded voters that the recession was caused by a financial crisis and thus would take longer from which to recover. In fact, economists say that recessions caused by financial crises, like the most recent recession, are more severe and have a much longer recovery time than other recessions.
President Obama Explains That Recessions Caused By Financial Crises Are More Severe Than Others
President Obama: "Throughout History, It Has Typically Taken Countries Up To 10 Years To Recover From Financial Crises Of This Magnitude." During a speech in Cleveland, Ohio, President Obama explained that "this was not your normal recession":
PRESIDENT OBAMA: [I]n the fall of 2008, it all came tumbling down -- with a financial crisis that plunged the world into the worst economic crisis since the Great Depression.
Here in America, families' wealth declined at a rate nearly seven times faster than when the market crashed in 1929. Millions of homes were foreclosed. Our deficit soared. And nine million of our citizens lost their jobs -- 9 million hardworking Americans who had met their responsibilities, but were forced to pay for the irresponsibility of others.
In other words, this was not your normal recession. Throughout history, it has typically taken countries up to 10 years to recover from financial crises of this magnitude. Today, the economies of many European countries still aren't growing. And their unemployment rate averages around 11 percent.
But here in the United States, Americans showed their grit and showed their determination. We acted fast. Our economy started growing again six months after I took office and it has continued to grow for the last three years. [WhiteHouse.gov, 6/14/12]
In Response, Fox Hosts Dismiss The Severity Of The Recession
Fox's Jon Scott Misquotes Obama's Speech, Equating Normal Recessions With Those Caused By Financial Crises. On Fox's Happening Now, host Jon Scott played a video clip of President Obama describing the impact of financial crises like the recent recession. Scott then claimed Obama was making the excuse that any recession requires a decade to recover:
JON SCOTT: [Obama's] line about how countries often need ten years or more to recover from a recession. I mean, maybe that's true, but he could be talking about Venezuela, or Ghana, or something; we're talking about the United States. [Fox News, Happening Now, 6/18/12]
Fox's Neil Cavuto: Recessions Are "Never Really" Different. Appearing on America's Newsroom with host Martha MacCallum, senior vice president of Fox business news Neil Cavuto dismissed Obama's statement on the impact of financial crises, alleging that "this recession is acute, but not as severe as the early 70's recession" or the "early 80's recession":
MACCALLUM: Ten years to recovery?
CAVUTO: Every time I hear presidents, or economists, or market-types say it's different this time, or this recession it's different -- You know they never really are. In the scheme of things, we have recessions, and there is a sort of a lag time and a recovery time, generally anywhere from 18 to 36 months. This recession was acute, but actually it wasn't nearly as severe as the early 70s recession, or later on the late 70s recession that turned out to be into the early 80s recession. So, it was no more acute than that, truth be told. Just laying it out there. The recovery time is taking longer. Critics will argue because we doubled down and spent more and made it more problematic and then we piled on the world's troubles as well. But the world's troubles were evidence in different recessions as well. [Fox News, America's Newsroom, 6/15/12]
Economists: Recessions Caused By Financial Crises Are Especially Severe And Have Slower Recoveries
Carmen Reinhart and Kenneth Rogoff: Recessions Following Financial Crisis Have A Much Longer Recovery Time Than Other Recessions. Economists Carmen Reinhart and Kenneth Rogoff explained the difference between recessions caused by financial crises and other recessions:
After a normal recession (which for the average post-World War II experience in the U.S. lasted less than a year), the economy quickly snaps back; within a year or two, it not only recovers lost ground but also returns to trend.
After systemic financial crises, however, economies of the postwar era have needed an average of four and half years just to reach the same per capita gross domestic product they had when the crisis started. We find that, on average, unemployment rates take a similar time frame to hit bottom and housing prices take even longer. With the Great Depression of the 1930s, economies on average needed more than a full decade to regain the initial per capita GDP. [Bloomberg, 4/2/12]
Reinhart and Rogoff: In Two-Thirds Of Post WW-II Financial Crises, Unemployment Did Not Return To Pre-Crisis Levels Even After Ten Years. In After the Fall, a 2010 paper written by economists Vincent Reinhart and Kenneth Rogoff, the authors determined that "in 10 of 15 severe post-WWII financial crises, unemployment didn't return to pre-crisis levels even after a decade. It also showed that in seven of the 15 crises there were 'double dips' in output." [Bloomberg, 4/2/12]
IMF: Recessions Associated With Financial Crises Are Severe And Longer Lasting Than Other Recessions. The International Monetary Fund found that in 2009 that "two features of the current recession - its association with deep financial crisis and its highly synchronized nature - suggest that it is likely to be unusually severe and followed by a slow recovery":
Using the dates of financial crises, a recession is said to be associated with a financial crisis if the recession starts at the same time or after the beginning of a financial crisis.
Recessions associated with financial crises are longer and generally more costly than others. They are also followed by weak recoveries: the time taken to recover to the level of activity reached in the previous peak is as long as the recession itself, whereas cumulative GDP growth in the four quarters after the trough is typically lower than following other types of recessions.
[International Monetary Fund, 4/16/09]
Reinharts: In The Decade Following Severe Financial Crises, "Unemployment Rates Are Significantly Higher Than In The Decade That Preceded The Crisis." A study by economists Vincent and Carmen Reinhart found that unemployment rates remain higher and median housing prices lower during the ten years following financial crisis:
Real per capita GDP growth rates are significantly lower during the decade following severe financial crises and the synchronous world-wide shocks.
In the ten-year window following severe financial crises, unemployment rates are significantly higher than in the decade that preceded the crisis. The rise in unemployment is most marked for the five advanced economies, where the median unemployment rate is about 5 percentage points higher (Figure 2). In ten of the fifteen post-crisis episodes, unemployment has never fallen back to its pre-crisis level, not in the decade that followed nor through end-2009. [VoxEU.org, 9/13/10]
And The Recession Was The Most Severe Since The Great Depression
McClatchy: Economic Data Revisions Show That "The Great Recession, Already The Worst Downturn Since The 1930s, Was Even More Damaging Than Previously Recognized." In the summer of 2011 the Bureau of Economic Analysis released revisions to its estimates of the economy from 2008-2010. McClatchy reported:
BEA also unveiled its annual revision of economic data back to 2008. The revision found that in 2008 the economy actually contracted rather than eking out a tiny gain as initially reported, and 2009 growth was almost a full percentage point slower than estimated earlier.
The quarterly percentage change in real gross domestic product was revised down for six of the 12 quarters reviewed. That means the Great Recession, already the worst downturn since the 1930s, was even more damaging that previously recognized. [McClatchy, 7/29/11]
AP: "The 2007-2009 Recession ... Was Even Worse Than Previously Thought." The Associated Press reported:
The 2007-2009 recession, already in the record books as the worst in the 66 years since the end of World War II, was even worse than previously thought.
From the start of the recession at the end of 2007 to the end in June of 2009, the U.S. economy shrank 5.1 percent. That is 1 percentage point worse than the previous estimate that the recession reduced total output during that period by 4.1 percent.
The new estimates emerged from the annual revision of economic data prepared by the Commerce Department's Bureau of Economic Analysis and released Friday.
Among the previous 10 postwar recessions, output in only two dropped by more 3 percent. In the 1957-58 recession, the economy contracted 3.7 percent. And during the 1973-1975 downturn, the economy fell 3.2 percent from the start of the recession to the end. [Associated Press, 7/29/11]
Wash. Post: Moody's Chief Economist Mark Zandi Said Revised Data Shows The Recession Was Much More Severe Than Thought. The Washington Post reported: "As Moody's chief economist Mark Zandi told me this morning, the revisions suggest that the recession following the financial crisis was much, much more severe than we'd thought--the economy actually shrank at a 8.9 percent annual rate the fourth quarter of 2008 and 6.7 percent in the first quarter of 2009 (earlier estimates had shown a smaller, 5.9 percent annualized drop across the two quarters)." [The Washington Post, 7/29/11]