Gramm and Hubbard: What a Romney Recovery Might Look Like
Given last week's grim jobs report, it's now clearer than ever that the November election will be a referendum on the economy. Has the president's program worked? Does Mitt Romney have a better program to promote job creation and prosperity? Fortunately, Americans have evidence that will allow them not only to judge President Obama's economic performance, but also to compare that performance with Mr. Romney's proposed alternative.</br></br>Twice in postwar America, deep recessions have driven the unemployment rate to 10%. In the 1981-82 recession, the unemployment rate soared to 10.8%. In the 2007-09 recession, it peaked at 10%.</br></br>Both downturns were rooted in financial convulsions. The 1981-82 recession was induced by restrictive monetary policy aimed at breaking the back of double-digit inflation and interest rates, which generated a housing and savings-and-loan crisis. The more recent recession resulted from excessive government intervention to increase homeownership by expanding subprime housing loans, on which substantial leverage was built. The resulting wave of defaults damaged the base of the banking system.</br></br>Fifty-three months after the start of the 1981-82 recession, total employment in the U.S. was up 7.5 million, or almost 7.5% higher than when the recession began. The labor-force participation rate rose to 65% from 63.8%, as optimism about the future pulled potential workers into the job market. Real per capita gross domestic product increased by $2,870 and was 11% higher than when the recession started.</br></br>Fifty-three months after the start of the 2007-09 recession, however, total employment in the U.S. is still down four million jobs, or 2.7% lower than when the recession began. The labor-force participation rate has dropped to 63.8% from 66%, as discouraged workers have exited the labor market. Real per capita GDP has declined by $964 and is 2.2% lower today than when the recession began.