Josh Lehner… concludes:
when the Great Recession is compared… to the Big 5 financial crises and the U.S. Great Depression (thanks to U.S. Treasury for adding that to the graph), the current cycle actually compares pretty favorably. This is likely due to the coordinated global response to the immediate crises in late 2008 and early 2009….
This is worth highlighting because of the eagerness of policymakers to embrace Reinhart and Rogoff as an excuse to avoid fiscal and monetary policy…. Bullard sees Reinhart and Rogoff as an excuse to do nothing…. Bullard completely misses the… argument that if financial crises are long-lasting, then the policy response needs to be more aggressive. As Lehner points out, aggressive policy response can mitigate the impact of the crisis. Bullard should read Reinhart and Rogoff as a demand to do more, not an excuse to do less.
Indeed, Reinhart and Rogoff have said as much. Via Ezra Klein:
if you look at the leaked memo that the Obama administration was using when they constructed their stimulus, you’ll find, on page 10 and 11, a list of prominent economists the administration consulted as to the proper size for the stimulus package. And there, on page 11, is Rogoff, with a recommendation of “$1 trillion over two years” — which is actually larger than the American Recovery and Reinvestment Act. So if they’d been following Rogoff’s advice, the initial stimulus would have been even bigger — not nonexistent.
As for Reinhart, I asked her about this for a retrospective I did on the Obama administration’s economic policy:
The initial policy of monetary and fiscal stimulus really made a huge difference…. I would tattoo that on my forehead. The output decline we had was peanuts compared to the output decline we would otherwise have had in a crisis like this. That isn’t fully appreciated.
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