You will start to hear shortly that Trump’s economic recovery will be nearing an end soon because the recovery dating back to the Obama years has gone on for so long, and the economic business cycle will be due for another recession before long. But there is a fundamental fallacy in that.
The very steep 2007-09 recession is officially recorded as ending in June, 2009, heralding the start of the recovery in July. If that is correct, we would be in one of the longest recoveries without a recession ever, with a recession overdue.
But the American historical record is the deeper the recession, the stronger the recovery, as first recognized by Nobel Prize winning economist Milton Friedman. That results because the economy in recovery grows faster than normal for a while, until it catches up to where it would have been without the recession.
Normal, annual, real economic growth for the U.S. economy is at least 3 percent to 4 percent, over 4 percent during periods of pro-growth policies, and booming recoveries. That is what we saw during the Kennedy recovery in the 1960s, and the Reagan recovery in the 1980s, which lasted through the 1990s under the Congressional Republican majorities elected to both houses in 1994.
But economic growth for Obama’s entire two terms in office averaged less than 2 percent. That is not a recovery. That is long term stagnation.
At less than 2 percent economic growth, after 50 years the economy will only have grown by about 2½ times. At 4 percent growth, the economy doubles every 17 years. After another 17 years, it doubles again, to 4 times as large. After another 17 years, roughly half a century, it doubles again, to 8 times as large. Such persistent growth is what made America into America.
As economic historian Brian Domitrovic wrote in his pathbreaking book, Econoclasts: The Rebels Who Sparked the Supply Side Revolution and Restored American Prosperity, “The unique ability of the United States to maintain a historic rate of economic growth over the long term is what has rendered this nation the world’s lone hyperpower.”
The Obama “recovery” was, in fact, the worst recovery from a recession since the Great Depression, with the slowest economic growth in 60 years. America suffered 11 other recessions since the Great Depression, besides 2007-09. In those 11 recessions, the economy recovered all jobs lost by an average of 27 months after the recession began, just over 2 years.
In Obama’s recovery, the recession’s job losses were not recovered until after 76 months, more than 6 years. That included the longest period since the Great Depression with unemployment over 8 percent – 43 months, from February, 2009, when Obama’s nearly $1 trillion “stimulus” spending was passed, until August, 2012, most of Obama’s entire first term.
The U.S. economy suffered severe recession during Reagan’s early years, due to the tight monetary policy that broke the back of the 1970s double digit inflation. All the job losses from that recession were recovered after 35 months. By 76 months, Reagan’s economy had created 12.8 million new jobs from the previous peak, compared to zero on net during Obama’s “recovery”.
Similarly, in the 11 previous post-Depression recessions, the economy recovered the GDP lost during the recession within an average of 4.6 quarters, just over a year. It took Obama’s recovery 14 quarters, or 3.5 years, to reach that point. Reagan’s recovery took half that time, 7 quarters, less than 2 years, to recover the lost GDP.
Eight years (32 quarters) after the 2007-09 recession began, the economy had grown just 9.7 percent above where it was when the recession started. That reflected compounding real annual growth of just 1.2 percent on average. After 32 quarters of Reagan’s recovery, the economy had grown by 32.5 percent, one third, reflecting compounding real growth of 3.6 percent, three times Obama’s rate.
The economy by the end of Obama’s second term was $3 trillion below where it would have been under Reagan’s recovery. The average household earned $25,000 less than it would have under Reagan’s recovery.
Reagan got his results from deep cuts in marginal income tax rates, deregulation, spending cuts, and restrained monetary policy breaking the worst U.S. inflation since the Civil War. Obama got his disastrous, slow growth results from just the opposite, raising tax rates for virtually every major federal tax, maintaining corporate income tax rates virtually the highest worldwide, overregulation, foolishly Keynesian, record breaking, spending, deficits and debt, and reckless zero interest rate monetary policies.
Consequently, there never was a real recovery under Obama. The real recovery only began in 2017. That means the recovery and stock market boom can go on for at least 6 to 7 more years, as it did for Kennedy and Reagan.
Peter Ferrara teaches economics at Kings College in New York, serving also as a Senior Fellow at the Heartland Institute, and Senior Policy Adviser for the National Tax Limitation Foundation. He also served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.
