The irrelevance of a word

INSERT DESCRIPTIONRecession dating versus reality

So, GDP was up slightly in the first quarter. Does that mean that we’re not in a recession? The correct answer is, who cares?

The NBER Business Cycle Dating Committee defines a recession as




The point is that the official definition of recession has become delinked from peoples’ actual experience. Right now, we’re in an economy with deteriorating employment and incomes, collapsing home prices, and business retrenchment. Is it also an economy in recession? Who cares?

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Could the reason the “official definition of recession” is delinked from what people actually experience be because they took out the things that really matter to people, such as gas prices?

They also changed the things that they look at from items such as steak to hamburger, a bit of apples to oranges comparison, to make it look better. If they would stick to the things they USED to use to determine it, it would reflect the realities for most people much better.

Official definition of recession is not not the only government statistic that has become delinked from people’s actual experience. Consider the various official statistics on inflation Core CPI, Top Line CPI etc., all of which indicate mild inflation, while people’s actual costs of living, when calculated in the same methodology as during stagflation days (absent hedonics) yields rates close to 10%. That is particularly important to keep in mind, when Wall St economists claim we don’t have stagflation, because today we don’t have the high inflation rates of the late 70s and early 80s.

I’ve always wondered…why aren’t recessions defined
as a decline in GDP-per-capita?

If the economy is not growing as fast as population,
that’d be better correlated with unemployment,
income etc., right?

Joseph O’Shaughnessy April 30, 2008 · 11:54 am

The recession is like pornography, I may not be able to define it but I recognize it when I see it.

The question now is not, as Dr. Krugman says, “whether or not.”

The question is: “Now What?”

The market is rising relatively sharply in relation to the temper of the times yet no one says…”hold on a minute. Why is the market going up when everything else is going down?”

Things going down include, by the way, the purchasing power of everyone from the upper-middle class to the working poor. Gas prices are beyond imagination yet there is no revolution. People’s pockets are being picked by corporate lobbyists at every level and yet there is no revolution. Food prices are gradually going out of the reach of the poor and those on fixed incomes but there is no revolution.

Entire television networks create programming around the rants of a single black preacher while $340 million is spent in Iraq today–our money–and another $340 million will be spent tomorrow, and the day after that…for fifty or a hundred years according to Economics and International Relations professor McCain.

I guess the question for most Americans seems to be “Who cares?” Which only shows that we get the government that we deserve.

We should just move to the Fed view, which is to focus on the output gap. Periods of below-potential GDP growth can be equivalent to an actual downturn. Which is why the modern Fed does not wait for, or even need, a recession to spur it to action.

But, isn’t the unemployment rate is relatively low compared to a lot of other countries? Shouldn’t we let the housing bubble to self adjust instead of prolonging the bubble? It’s one bubble after another letting people to get more unrealistic and spend without means…and benefit the cunning rich.

Adjust GDP data for actual (rather than bogus) inflation measures, and this is Q2 of sub 0 GDP growth

The official designation of a recession only occurs after the fact, which renders it irrelevant to policymakers and individuals. Because business strategies no longer wait until a recession occurs before acting — with layoffs or hiring freezes or investment cutbacks — the official designation is doubly irrelevant.

Most economists believe globalization and free trade is a good thing. But it seems that your chart showing a downward trend in job loss is directly related to both. While it may be good for the corporations who have exported jobs it has hurt the middle income worker. Many Americans are not players in the stock market or have the talent, drive and education to move into the high tech jobs that remain in the US. They were the people that produced the goods, from the auto assembly line, the machinists, the steel workers, the forge shops, and the foundries that built the country. Now they are being driven into to poverty. From good paying jobs with a pension and medical benefits they now work at a Walmart if they work at all. I guess I am stupid but I fail to see where globalization and free trade has made the US a better country for all. It certainly has increased the gap between the haves and have nots.

Jesse Silverglate April 30, 2008 · 1:56 pm

An even more important question than if we are in an official or unofficial recession is who will the voters blame?
Will they blame themselves for not saving, taking on debt beyond all reason, and living beyond their means?
Will they blame the Bush administration for ballooning the debt, spending billions off budget for an endless war in Iraq, and lowering taxes for the wealthy?
Will they blame the the non god fearing, pro life, pro gay marriage crowd for God’s punishment?
Who they blame will influence who they vote for and that will decide whether we go deeper into a hole or begin to dig ourselves out. The swing voters may well be the God and Guns crowd Obama so clearly defined.

Present and future NBER chairman have both indicated that NBER is very close to calling an official recession.

It’s also worth reminding folks that a recession does NOT have to have back to back negative quarters. Case in point the 2001 recession did not have that pattern.

Why should we believe these statistics from the Commerce Department? Last I checked, they were part of the Executive Branch. Hasn’t every part of that been so totally politicized by now that their primary mission has been transformed from whatever it originally was to the output of administration propaganda? I’d look for them to restate their growth figures downward sometime in late November.

Paul is abolutely right that much more attention should be paid to unemployment rather than GDP – it is in unemployment that recessions are felt by the country.

But he is wrong in thinking that lagging recovery of employment is a new phenomenon – it has happened more often than not in past recessions. For example, GDP growth bounced back quickly after the bottom of the Great Depression in 1933 – the average growth from 1934 to the end of the decade was considerable higher than in the “roaring” 20s (even excluding the recession years of 1920 and 1921). No one would say that the Great Depression was over in 1933, because unemployment did not come down to acceptable levels until after the start of WW II.

Once a recession or depression hits bottom, business can take care of itself. National policy should be aimed directly towards reducing unemployment: or better, not allowing it to rise in the first place.