On Fox's Special Report, senior political analyst Brit Hume attacked President Obama for overseeing a weak recovery, suggesting recessions caused by a financial crisis usually lead to “strong, sharp recoveries.” However, economists say that recessions caused by financial crises, like the most recent recession, are more severe and have slower recoveries, and that Obama's economic policies have helped the recovery.
Hume Falsely Claims Recessions Following Financial Crises Lead To Quick Recoveries
Hume Falsely Claimed “Deep Recessions, Including Those Involving A Financial Crisis, Normally Lead To Strong, Sharp Recoveries.” During the October 1 edition of Fox News' Special Report with Bret Baier, Fox News senior political analyst Brit Hume attacked President Obama for overseeing “the weakest recovery since World War II” and falsely claimed “deep recessions, including those involving a financial crisis normally lead to strong, sharp recoveries.” From the show:
HUME: The president inherited an economy still in recession, all right. But its recovery came before the policies could take effect. And remember this; deep recessions, including those involving a financial crisis normally lead to strong, sharp recoveries but this has been the weakest recovery since World War II. [Fox News, Special Report with Bret Baier, 10/01/12]
Hume Downplayed The Role Of The Stimulus On The Recovery. Hume also downplayed the role of the stimulus on the recovery by suggesting “massive stimulus spending Mr. Obama signed in to law” had little to do with the economic recovery:
HUME: A central premise of the Obama campaign is that he inherited an economy in free-fall, pulled it back from the brink and set it on the right path. But consider this; the economy fell in to recession more than a year before Mr. Obama took office. By the time he was inaugurated the worst of it was over. The economy was still shrinking but the steepest decline had occurred in the finale quarter of 2008. It shrank less in first quarter of 2009. By June of 2009 it began to grow again, marking the official end of the recession. Mind you this occurred before almost any of the massive stimulus spending Mr. Obama signed in to law had taken effect. [Fox News, Special Report with Bret Baier, 10/01/12]
However, Economists Say 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 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]
Vincent And Carmen Reinhart: Unemployment Rate Usually “Significantly Higher” In The Decade Following Severe Financial Crises. 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 crises:
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 Economists Say Stimulus Helped Economic Recovery
CBPP: Because Of Stimulus, “The Unemployment Rate Has Been Lower Each Year Since 2009 Than It Otherwise Would Have Been.” The Center on Budget and Policy Priorities (CBPP) produced a chart showing the real unemployment rate alongside CBO estimates of what the unemployment rate would have been without the stimulus bill from mid-2007 through 2012:
[Center on Budget and Policy Priorities, updated 8/30/12]
CBPP: “GDP Has Been Higher Each Year Since 2009 Than It Would Have Been Without The Recovery Act.” The CBPP post also featured a chart showing real GDP alongside the Congressional Budget Office's (CBO) estimates of what GDP would have been without the stimulus:
[“Chart Book: The Legacy of the Great Recession,” Center on Budget and Policy Priorities, updated 8/30/12]
Congressional Budget Office: Stimulus Boosted Economy By Up To 4.1 Percent In 2010, 2.3 Percent In 2011. In its May 2012 report, the CBO estimated that the Recovery Act increased real GDP by between .7 percent and 4.1 percent in 2010, and by between .4 percent and 2.3 percent in 2011. [Congressional Budget Office, May 2012]
CBO: Stimulus Created Equivalent Of Up To 4.7 Million Jobs In 2010, Up To 3.6 Million In 2011. The May 2012 CBO report also found that the stimulus created the equivalent of between 900,000 and 4.7 million jobs in 2010 and the equivalent of between 600,000 and 3.6 million jobs in 2011. [Congressional Budget Office, May 2012]
Wall Street Journal: 70 Percent Of Economists Surveyed Said Stimulus Helped. The Wall Street Journal reported on March 12 that 38 of the 54 economists it surveyed “said the American Recovery and Reinvestment Act boosted growth and mitigated job losses, while six said the legislation had a net negative effect.” [The Wall Street Journal, 3/12/10]
ABC News: Most On Panel Of Economists “Think The Economy Would Be Worse” Without The Stimulus. ABC News reported on February 18 that “most” of the economists on its panel “think the economy would be worse today without the big aid package, which totaled $787 billion and was signed into law by President Obama on Feb. 17, 2009.” [ABC News, 2/18/10]
USA Today: Surveyed Economists Said “Stimulus Package Saved Jobs.” USA Today reported on January 25, 2010, that, according to a survey of economists, the economy would have lost more than a million more jobs without the stimulus:
President Obama's stimulus package saved jobs -- but the government still needs to do more to breathe life into the economy, according to USA TODAY's quarterly survey of 50 economists.
Unemployment would have hit 10.8% -- higher than December's 10% rate -- without Obama's $787 billion stimulus program, according to the economists' median estimate. The difference would translate into another 1.2 million lost jobs. [USA Today, 1/25/10]