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Study Suggests Recovery in U.S. Is Relatively Vital

PHILADELPHIA — Academic heavyweights have been debating whether the current United States economy is so sluggish because of too much government stimulus or not enough, or because slower growth had become the norm even before the recession.

But maybe these arguments share a faulty premise.

The American economy is actually doing reasonably well — at least compared with what would be expected after a major financial crisis — according to a provocative study from Carmen M. Reinhart and Kenneth S. Rogoff, Harvard economists and financial crisis historians whose work has been attacked and embraced by the political right and left.

The study, presented over the weekend at the annual meetings of the American Economic Association, rejects comparisons with regular postwar American recoveries, as other economists have made, and instead examines 100 major, or "systemic," financial crises that have occurred over the last two centuries, in the United States and abroad.

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It found that relative to previous American financial crises, the current economy is doing substantially better. Across nine major financial crises in the United States, the average peak-to-trough decline in inflation-adjusted per-capita gross domestic product is about 9 percent, and it has taken an average of 6.7 years to recover to the precrisis peak. During the years after crises, five of the nine episodes also had a "double-dip" downturn.

By contrast, the recent American subprime crisis beginning in 2007 had "only" a 5 percent drop in per capita output, and took "only" six years to get back to the precrisis peak. And so far, at least, there has been no second downward turn.

Employment and other measurements currently remain well below their precrisis peaks, but it is difficult to compare those numbers to past crises because the historical data for those categories is not as reliable, Ms. Reinhart said. Relative to its current peer countries, the study says, the United States is also doing unusually well.

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Eleven other countries experienced systemic crises around the time the United States did: France, Germany, Greece, Iceland, Ireland, Italy, the Netherlands, Portugal, Spain, Ukraine and Britain. Six years later, just two of them—the United States and Germany—have recovered to their previous peak in real income.

While the United States has been doing well relative to historical crises, the other advanced countries seem to be doing especially poorly compared with their performance after previous crises.


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