AMERICAN.COM

Even diehard Obamacrats know this current economic recovery is nothing to write home about. At a House Budget Committee hearing today with Federal Reserve Chairman Ben Bernanke, Representative Chris Van Hollen, a Democrat from Maryland, called the economy “fragile” before downgrading it a few moments later to “very fragile.”

Well, it certainly is very weak. The average growth rate per quarter for the first two years of recoveries since World War II is 4.5 percent, according to the Cleveland Fed. Growth during the Obama recovery has been just 2.5 percent. The Reagan Recovery, by contrast, was 6.3 percent.

But Obama supporters says Obama inherited a worse economy than Reagan did. They note that a) the 2007-2009 downturn saw output fall by a cumulative 5 percent vs. 3 percent during the 1981-82 downturn, and b) Reagan didn’t have to deal with a downturn caused by a financial crisis. And everyone knows that recessions sparked by a banking collapse are worse than other kinds. So Americans needs to lower their expectations. And they certainly shouldn’t blame the anemic recovery on Obama policies like the trillion-dollar stimulus.

In The Wall Street Journal today, former Senator Phil Gramm co-authors an op-ed taking issue with this theory:

The most recent excuse for the failed recovery is that financial crises, by their very nature, result in slower, more difficult recoveries. Yet the 1981-82 recession was at least in part financially induced by inflation, record interest rates and the dislocations they generated. The high interest rates wreaked havoc on long-term lenders like S&Ls, whose net worth turned negative in mid-1982.

And, as noted earlier, the Reagan Recovery was robust despite the economy’s financial woes. Gramm also points to the Panic of 1907:

With the failure of the Knickerbocker Trust Company, the stock market collapsed, loan supply vanished and a scramble for liquidity ensued. Banks defaulted on their obligations to redeem deposits in currency or gold. Milton Friedman and Anna Schwartz, in their classic “A Monetary History of the United States,” found “much similarity in its early phases” between the Panic of 1907 and the Great Depression. … The May panic triggered a massive recession that saw real gross national product shrink in the second half of 1907 and plummet by an extraordinary 8.2% in 1908. Yet the economy came roaring back and, in two short years, was 7% bigger than when the panic started.

Gramm isn’t alone in disputing the “financial crises lead to weak recoveries” theory. Here is a Federal Reserve study on the topic from November (bold for emphasis):

This paper studies the behavior of recoveries from recessions across 59 advanced and emerging market economies over the past 40 years. Focusing specifically on the performance of output after the recession trough, we find little or no difference in the pace of output growth across types of recessions. In particular, banking and financial crises do not affect the strength of the economic rebound, although these recessions are more severe, implying a sizable output loss. …  Whether a recession is associated with a banking or financial crisis does not have a statistically significant effect on the pace of growth following recession troughs. … Banking and financial crises are associated with more severe recessions – deeper in the case of emerging market economies and longer in the case of the advanced economies – but do not appear to impose additional restraint to recoveries beyond the depth and duration.

Now, the Fed study also says that “recoveries from recessions associated with severe housing downturns are found to be slower.” Yet  it adds that even adding “the severe housing downturn as an explanatory variable for the pace of the U.S. recovery, the current recovery is still underperforming the model’s expectation but only by one percent.”

Here is a chart reflecting the model the study refers to:

As the Fed study implies, none of this is shocking. But given the high risk of a subpar recovery, did Obama do what was needed to avoid a relatively predictable outcome? Was the American Recovery and Reinvestment Act the right medicine in early 2009 or did it “ultimately fail to do what America expected it to do — bring about a strong, sustainable recovery“?  Did Team Obama’s housing policies work? Prices are still searching for a bottom and given the recently flurry of new housing initiatives from the White House, the answer sure looks like a big “no.”

Will Obama get a pass on the economy? The results of a recent Washington Post poll offer a clue:

The latest Washington Post/ABC News poll shows that 54 percent of Americans consider George W. Bush primarily responsible for the problems facing the economy, while only 29 percent put the blame on President Obama. Even one in five Republicans blames Bush rather than Obama.

Of course, voters could pin the recession on Bush but still feel Obama hasn’t done enough to speed the recovery. This is largely the argument Mitt Romney makes when he says Obama “made the recession worse.” And the poll provides some support of it: 48 percent of Americans approve of Obama’s job performance — an increase over recent months — but only 45 percent approve of his work on job creation, and 52 percent say Obama, in general, has accomplished “not much” or “little or nothing.”