Two starkly different views of the nation’s economic recovery emerged during the recent political conventions as Republicans decried the progress as an utter disaster, while Democrats hailed an economy that has vastly improved since the darkest days of the worst recession in 70 years.
But the true picture lies somewhere in between, economists said. As evidenced by another month of weak job growth in August, reported by the Labor Department Friday, the economy still lags. More than three years after the recession, the nation has regained only about half of the nearly 9 million jobs lost in the downturn, and unemployment remains high at 8.1 percent.
Such slow progress, analysts say, is to be expected given the nature of the recession inherited by President Obama, one precipitated by the near collapse of the global financial system and one that continues to reverberate around the world.
Harvard University economist Kenneth Rogoff, who has studied 800 years of recessions in 66 countries, said the pace of the recovery is consistent with those that followed other meltdowns, such as the Great Depression.
“This was such a global crisis compared to other post-World War II crises,” Rogoff said. “It meant it was more dangerous and harder to dig your way out of.”
Most economists agreed that the US economy is on the mend and that the Obama administration’s $800 billion stimulus package helped save the nation from a second Great Depression by putting a floor under an economy in freefall. But it also fell short of expectations and triggered a national debate about federal deficits — an unresolved issue that still hangs over the recovery.
The Obama administration projected the stimulus would cap the jobless rate at 8 percent, but unemployment rose well above that, peaking in October 2009 at 10.1 percent. Mark Zandi, chief economist at Moody’s Analytics, a forecasting firm in West Chester, Pa., said the Obama administration overestimated the effects of the stimulus while ineffectively handling the foreclosure crisis and efforts to fix the housing market.
“But the totality of what he’s done will ultimately go down in history as a success,” Zandi said.
Zandi, who advised Republican presidential nominee John McCain during the 2008 campaign, said GOP assertions that the economy’s problems result from a failure of government are simply wrong. The problems, he said, were brought on by the recklessness of Wall Street.
“The thing I take the most exception to is the argument that government screwed up here — government saved our bacon,” Zandi said. “It was very costly, but the cost would have been measurably different and greater had the government not interceded.”
The US financial system and economy stood on the verge of wholesale collapse four years ago, when the last presidential campaign was in full-swing. Obama took office in January 2009, the worst single month of job losses during the recession, as employers slashed nearly 820,000 jobs.
Economies damaged by financial crises rebound more slowly because the flow of credit remains impeded long after the recovery gets underway. Credit is a vital nutrient for growth, supporting consumer spending, business expansion, and ultimately hiring.
The recovery has also contended with the continuing financial crisis in Europe, which has flared in each of the past three years, weighing on the US economy just as it appeared to be gaining momentum. Last summer, the standoff in Congress about increasing the national debt ceiling raised the spectre of a US default, spooking global markets and creating additional drag on the recovery.
Sung Won Sohn, an economics professor at California State University, said the standoff did not help the recovery, but the damage had already been done by the financial crisis.
“The US economy is like an aircraft carrier — you can turn it around but it takes a long time,” Sohn said. “But mainly it was the financial crisis that precipitated this situation and its aftermath and it is going to take a long time to come out of it.”
Nariman Behravesh, chief economist at IHS Global Insight, a Lexington forecasting firm, said it typically takes three to five years to fully recover from a severe financial crisis.
Like Zandi, Behravesh said the stimulus helped — US economic output has regained prerecession levels — but Obama missed opportunities to do more to aid the recovery.
Behravesh criticized the president for not embracing the recommendations of the bipartisan Simpson-Bowles debt reduction commission, which offered a combination of tax increases, budget cuts, and entitlement reforms to bring down ballooning government deficits.
Had he done so, Behravesh said, the nation might not be facing the so-called fiscal cliff, the prospect of big tax increases and deep spending cuts if Congress cannot reach a budget compromise by year end.
None of this has helped business or consumer confidence as the economy limps along.
“In retrospect, it was a huge missed opportunity,” Behravesh said. “Instead we’ve lurched from one problem to another, from a debt ceiling crisis to a fiscal cliff.”
Of the four US recessions in the last 30 years, only the recovery that followed the 2001 downturn experienced slower job growth at this point in the economic cycle. Just over three years since the last recession ended, employment has grown about 2 percent,compared with just over 1 percent about three years after the 2001 downturn. At the same point after 1990-91 recession, employment had grown nearly 5 percent, according to government statistics.
Rogoff, the Harvard economics professor, said he doubted the past four years would have played out differently had a Republican president led the nation.
“The period we’ve been through has not been easy,” Rogoff said. “But the real question is what’s next. It’s time to pick up the pieces, pick up the economy and decide where we want to be in the next 20 years.”