VoxEU Column Global economy Macroeconomic policy

The Rocky Balboa recovery

The on-then-off economic recovery in the US and Europe is one of the many mysteries of the post-crisis economy. This column provides some evidence that policymakers’ indecisiveness may be part of the cause. Because policymakers act decisively when things get bad and dither when things get better, corporate and consumer demand stalls just as the recovery gets going.

Every Sylvester Stallone fan knows that Rocky Balboa never gives up, or rather: “it ain't about how hard ya hit. It's about how hard you can get it and keep moving forward.” (Stallone 2006). However many times Rocky gets hit, he keeps on coming. Even after Apollo Creed floors him with a vicious hammer punch, Rocky jumps up for more punishment.

So too with the current US economic recovery: on track in the spring, knocked down in the summer. Payroll employment rose strongly in the spring of 2010, then fell back in the summer. Many thought the slump had ended in the spring of 2011, only to be disappointed in the summer. Then again this summer, after encouraging unemployment and growth figures in early 2012, the recovery was knocked back. Like Rocky, the US economy displays an impressive resilience. But also like Rocky, it continues to get whacked (for more on the US recovery see Giannone et al. 2012).

The obvious question is why the recurrent loss of momentum in the US economic recovery?

Figure 1. US economic policy uncertainty is an issue

Source: “Measuring Economic Policy Uncertainty” by Scott Baker, Nicholas Bloom and Steven J. Davis, November 2011, all data at www.policyuncertainty.com

Figure 2: European policy uncertainty is also bad

Source: “Measuring Economic Policy Uncertainty” by Scott Baker, Nicholas Bloom and Steven J. Davis, November 2011, all data at www.policyuncertainty.com


One factor we have been studying is the impact of policy uncertainty. Our data – posted at www.policyuncertainty.com and plotted in Figures 1 and 2 – show US and European policy uncertainty at historically high levels in recent years. For the US, we measure policy uncertainty by combining the intensity of newspaper coverage of policy-related economic uncertainty with the extent of disagreement among professional forecasters over future government spending and inflation, and the frequency and importance of scheduled tax code expirations. For Europe, we use the news-based approach exclusively.

Just in the past year, the US recovery has been rocked by a debt-ceiling debacle that threatened to curtail critical government functions, uncertainty surrounding healthcare reform, an impending fiscal cliff that policymakers built into tax and spending law, banking and sovereign debt crises in Europe, political chaos in Greece, and grave doubts about the viability of the euro. Taken together, these policy developments confront businesses and households with high and complex forms of economic uncertainty.
This uncertainty leads firms to cut back or defer hiring and investment decisions. It also drives consumers to put off buying new goods. As a result, uncertainty stalls both the corporate and consumer sector drivers of a recovery. Indeed, the Federal Reserve Board’s recent Beige Book - the summary of their anecdotal evidence from business contacts around the US found here – highlights policy uncertainty as a key issue that businesses claim is stalling the recovery.

Looking ahead, there is more policy uncertainty on the near horizon for the US economy: Presidential and congressional elections, the fiscal cliff, potential for another partisan fight over the federal debt ceiling, and prospects for large-scale battles over taxation. In Europe, there is the spectre of an outright Greek default, fiscal collapse in several European countries, the intensification and spread of bank runs, and a possible dissolution of the Eurozone.

We fear the US recovery, like Rocky, will be down on canvas again, pummelled by another round of policy uncertainty. If that happens, will the US economy spring back again, like Rocky? Perhaps, but even the most resilient fighters suffer long-term damage from repeated heavy blows.


Giannone, Domenico, Jasper McMahon, Lucrezia Reichlin, Saverio Simonelli (2012), “Have the US and European economies parted company? The signals are increasingly clear”, VoxEU.org, 2 May.

Stallone, Sylvester (2006), “Rocky Balboa”, Metro-Goldwyn-Mayer (MGM), Columbia Pictures, Revolution Studios.

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