Obama’s stimulus delayed recovery

Treasury Secretary Timothy Geithner keeps resorting to a familiar excuse for the slow recovery — the financial crisis. “Recoveries that follow financial crises are slower and more protracted, as Carmen Reinhart and Ken Rogoff have famously written. They are slower,” he told the Economic Club of New York last month.

It is an argument President Barack Obama has relied on repeatedly during his presidency. For example, in April 2011, Obama lamented: “[The economy] is not growing quite as fast as we would like, because after a financial crisis, typically there’s a bigger drag on the economy for a longer period of time.”

Thirty-three months since the “recovery” started in June 2009, the unemployment rate has yet to fall below 8.3 percent, far exceeding the previous post-World War II record of 13 months. Worse, most of the drop in recent months has occurred because people have given up looking for work and are thus no longer classified as unemployed. Today, there are 12.8 million unemployed and 43 percent have been out of a job for more than six months, almost twice as high as Americans have ever faced in the past.

But “financial crises” aren’t a valid explanation for the slow recovery.

Unemployment actually recovered faster in countries hit by a “financial crisis” than in those that were in a recession for other reasons. Of the nine foreign countries that the Bureau of Labor Statistics has produced comparable unemployment data for using the same definition of unemployment, Reinhart and Rogoff identify four as suffering from a financial crisis (Germany, Japan, the Netherlands and the United Kingdom) and five that were not (Australia, Canada, France, Italy and Sweden). From January 2009 to December 2011, the unemployment rates in the countries with financial crises actually increased less than in those that avoided such a crisis (0.66 percentage points versus 0.86 percentage points).

The evidence supports the Reinhart and Rogoff claim only if each country’s definition of unemployment is used — but then the rates aren’t comparable. And, unfortunately, their evidence never used comparable unemployment statistics.

Nor did countries suffering a financial crisis experience slower gross domestic product growth during their recoveries. From the third quarter of 2009 , when the U.S. recovery started, the difference in GDP growth between the two sets of nations averaged just one-tenth of 1 percent.

Reinhart and Rogoff have been very careful to avoid claiming that financial crises necessarily cause deeper and longer-term contractions: “One should be careful not to interpret this first pass at our long historical data set as definitive evidence of the causal effects of banking crises.” For example, is it the crisis per se that causes the problems or how the crisis is usually dealt with? If greater financial collapses lead to more new regulations, those new regulations could be what slows future growth.

Obama’s stimulus, multiple jobs bills and massive new regulations on financial markets, housing, health care, credit cards and energy have created chaos in America’s labor market. The resources the government spends must come out of someone else’s pocket. Spending almost $1 trillion on various stimulus projects means moving around a lot of resources and jobs. The new regulations are having a similar effect. And people don’t instantly move from one job to another. All these interventions temporarily increased unemployment and delayed the recovery.

Compare the U.S. and Canada. Their unemployment rates increased in lock step from August 2008 until six months later, in February 2009, when the stimulus was passed in the United States. During those six months, the U.S. unemployment rate rose by 2.1 percentage points, from 6.1 percent to 8.2 percent, and the Canadian rate grew by 1.9 percentage points, from 5.1 percent to 7 percent (using the BLS measure to make the Canadian measure of unemployment comparable to the U.S. rate).

The increased gap right when the stimulus was passed suggests that it was the stimulus, not something unique about the financial crisis, that made things worse.

“Financial crises” is just another item in a long laundry list of excuses offered by the Obama administration for the weak economic growth. Others explanations have included the Japanese earthquake, higher oil prices and economic “head winds” from Europe. Yet the question never asked is: Why did countries that didn’t follow Keynesian policies, such as Canada and Germany, fare so much better than the U.S.?

John R. Lott Jr. is a FOXNews.com contributor. He is an economist and co-author of "Debacle: Obama's War on Jobs and Growth and What We Can Do Now to Regain Our Future.".