As the US approaches the 5th anniversary of the end of the “Great Recession,” data from across the spectrum continues to show a weak economy. Whether sales, earnings, or jobs, the data can be best described as mixed.
If this “recovery” feels different that past turnarounds, that’s because it is. At this stage in the recovery under Reagan, for example, economic growth was double what it is now. If this recovery had matched the growth under Reagan, GDP would be almost $2 trillion higher than it is now.
The “Great Recession” began at the end of 2007 and lasted for 18 months until June 2009. During the contraction, real GDP, measured in chained 2009 dollars, shrank around 4%. In the 17 quarters since the end of the recession, the economy expanded from $14.3 trillion to $15.9 trillion, an increase of just over 10%.
While the recession in Reagan’s first term was shorter, lasting around 16 months, the contraction was almost as severe. Real GDP shrank by around 3%. In the 17 quarters following the end of that recession, however, the economy grew by over 23%. Real GDP, again measured in 2009 dollars, expanded from $6.4 trillion to $7.9 trillion.
Real GDP at the end of 2013 was $15.9 trillion. If, however, the economy had grown at the same pace following the recession in the early 1980s, the overall size of the economy would be $17.7 trillion, in real terms. An additional $1.8 trillion of economic output would solve a whole host of our present challenges.
Keep in mind, too, that the current anemic “recovery” has occurred against a backdrop of the largest fiscal and monetary government “stimulus” in history. The Federal Reserve has injected trillions of dollars into the financial markets, yet the economy has grown by far less.
Obviously, there are many variables that make an exact comparison between the Reagan and Obama recoveries difficult. History doesn’t repeat itself, but it does often rhyme. The two Presidents embarked on very different paths to correct the economy. We are witnessing in real time which path is better.