Tuesday, December 2, 2008

Recession...or no?

The National Bureau of Economic Research (NBER) has decided that we are officially in a recession, and that it began in December of 2007. (Kevin Drum has a post about that here.) Obviously, I derive no pleasure from that, but I find a certain amount of satisfaction in my perception back in January that the bulk of the country was experiencing a recession. (Actually, my emotional state has nothing to do with it at all.) It seemed clear to me that we were already in trouble, and that was before the major gas shocks of summer and the financial meltdown of the fall.

What makes this interesting is that there has been no topic that has generated more controversy on this blog than that of recession. One commenter would leap on any mention of the R-word, insisting that there was no such thing, that the NBER had not proclaimed any such thing. I attempted to reason with this person, even to the point of being willing to concede the term but not the problem. But back would come the hammer, again and again, insisting that it could not be a recession without the official go-ahead. It all became quite dreary, and I finally just had to stop presenting arguments; it was getting us nowhere and wasting a lot of time.

Part of the problem, of course, is that the rule of thumb (2 consecutive quarters of declining GDP) used by the media is simply incorrect. The NBER's "official" definition is:
A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.
This isn't deterministic enough for the media, so they have made up a measure as a proxy, but it doesn't precisely coincide (for example, the 2001 recession did not feature two consecutive quarters of GDP decline).

At any rate, the official NBER proclamation should satisfy my critic, right? After all, this person's contention was that it couldn't be a recession without the blessing hand acknowledging it.

Amusingly enough, if you read far enough down Drum's comments, Rick B mentions our mutual friend (that's right, this commenter has spread himself to other sites, relentlessly monitoring any casual use of the R-word). It turns out that, as Rick B puts it (by the way, I'm not going to provide a link, there's enough misinformation floating around in the world):
I checked his blog today. He has read the NY Times story today and now disagrees with the NBER. He is providing links to a whole series of statistics that he says prove there is no recession at present.
Here's the thing, and I've probably written this before. What difference does it make? Does something change because we have an "official" recession? No, people still have their troubles and their struggles, and a word isn't going to make their situations any better.

But it is ironic that someone who jumped all over me for not waiting for the NBER word, is now doubting that designation. Perhaps he should just proclaim that he doesn't believe in the concept of recessions. It would save everyone a lot of time.

No comments:

Clicky Web Analytics