This is at least the second piece by Floyd Norris of the New York Times in the past three or four months suggesting the recovery may be stronger than pessimists believe it will be, based on comparisons with previous recoveries.
I take all his points, but it seems to me he's missing an important difference between this recession and other post-World War II downturns. This is the first since the Great Depression to be associated with a financial crisis.
Yes, as Norris asserts, employment is a lagging indicator. But the job losses in recessions that follow financial crises are so much more severe than those lost in normal ones that it's likely to take much longer than he suggests for new ones to materialize. I've said that before, but don't take it from me. Try the economists Kenneth Rogoff and Carmen Reinhart, who studied the question in a paper they published two years ago.
As the authors put it in an updated version of the paper in December 2008, "The aftermath of banking crises is associated with profound declines in output and employment. The unemployment rate rises an average of 7 percentage points over the down phase of the cycle, which lasts on average over four years. Output falls (from peak to trough) an average of over 9 percent, although the duration of the downturn, averaging roughly two years, is considerably shorter than for unemployment."
Get that? The unemployment rate rises for an average of four years during the average downturn associated with a financial crisis. And as I mentioned the other day, the Congressional Budget Office projects that unemployment won't fall below 8 percent for another two years even under the most optimistic scenario.
So while Norris may be right on the money when it comes to his reading of post-war economic data, he may simply not be going back far enough.
Then there's the fact that he says not a word about structural changes in the economy that may be the ultimate cause for doubts about the strength, indeed the very meaning, of a recovery. Median US wage growth has barely budged since the late 1970s. Yet Norris seems to suggest we're in for a recovery like the one that followed the recession of 1982, as if nothing has changed in the past 40 years.
In fact, the 1982 recession was characterized by the loss of well-paying manufacturing jobs, particularly in the Midwest, that never came back, and he admits the two subsequent recoveries were weak, so it's hard to see why he finds the skepticism about recovery going forward so mysterious, and all but concludes that it is motivated by political considerations.
If the financial crisis showed anything, it is that the economy has grown increasingly dependent on consumption fueled by asset bubbles, and that such Ponzi-style growth is no longer sustainable.
Maybe Main Street sees what Wall Street doesn't. Maybe Democrats calling for a bigger jobs bill aren't just playing political games. Maybe the pessimists can't get past a reality the optimists are ignoring.