US economy: Who to blame for poor economic performance?

A smaller share of the population is in work than when President Obama took office
Image caption A smaller share of the population is in work than when President Obama took office

The economy has dominated this election campaign. That is hardly surprising when there are well over 20 million people either unemployed or working fewer hours than they want. But just how badly has the US economy performed and how does it compare with the rest of the developed world?

By the standards of US history, the current episode is poor. But on the international comparisons, the obvious answer is - a lot better than Europe.

Looking at total economic output, or GDP, the US has recovered all the ground lost as a result of the recession. The most recent data, for the third quarter of this year, show US GDP 2.2% above its pre-recession peak.

By contrast, Japan and much of Europe are still floundering at pre-recession levels of output. It's true of the eurozone as a whole. Within that, three of the large economies, France, Italy and Spain, have still not closed that gap, and outside the eurozone, neither has Britain. Germany has, however, recovered the lost ground.

The US performance is less impressive if we look at GDP per capita. The population has grown by 3.8%, which is more than the increase in GDP, so output per person is still below its pre-recession peak.

That reflects the fact that, although the US economy resumed growth in the second half of 2009, it has not been strong.

Jobless woes

The labour market is still anaemic, with a smaller share of the population in work than when President Barack Obama took office - though it is better than at the depth of the downturn.

There is a vigorous debate about the reason for this disappointing performance. One side says it's because of the severity of the financial crisis which caused the recession. The other blames government policies, especially those of President Obama's administration.

The leading academic advocates of the "blame the financial crisis" view are Carmen Reinhart and Kenneth Rogoff. Their book on eight centuries of financial crises argued that the subsequent recessions tend to be worse and recoveries less robust. In their analysis, what they call the "slow and halting" growth of the US economy "shouldn't be surprising".

They say they have not publicly supported or privately advised either presidential campaign, but their view is more congenial to the Obama camp.

The counter-argument puts the blame on government policies, and not only those of the current president. Again, there are some high-profile academics behind this view, including John Taylor and Greg Mankiw. They have come out for Mitt Romney.

They argue that, in fact, US recoveries after financial crises have been stronger than the current one. They accuse President Obama of opting for short-term fixes, such as ineffective use of the government budget to stimulate the economy. They say that uncertainty, particularly over tax and regulatory policies, has limited the recovery and new job creation.

Two contrasting views of why the economic performance of the US is so lacklustre. But neither camp denies the scale of the challenge.

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