Tuesday, December 02, 2008

 

Announcement of the Day: It's a recession!

The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28.... The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.

—text of the National Bureau of Economic Research (NBER) statement announcing that the U.S. recession began a year ago.


If economics were acknowledged to be the politico-religious activity that it is—its practitioners split into various factions, some claiming to represent "orthodox" fields of economics—the NBER might be viewed as the orthodox wing's College of Cardinals.

As the world waited ... and waited ... for an announcement of a recession, the day has finally arrived when the Cardinals have sent up a smoke signal to announce that such an event has been detected. The decision was reached by our leading economists not in a room of polished oak, leather and brass lit by Tudor sconces, as would seem appropriate to the occasion, but on the telephone in a conference call.

What took them so long?

I've been documenting indicators of dire economic troubles for the U.S. at least since 2005. Yet it has taken a full year after the avowed beginning of this nebulous event known as a "recession"1 for the Cardinals to decide that something was seriously wrong with the U.S. economy. If it takes that long to declare, is it really that important? And are these the "scientists" that Presidents, legislators and business leaders want by their side, we wonder?

I would hazard that the wait for the announcement, assuming that the Cardinals aren't simply congenitally enfeebled, was itself an effort to control (and presumably to advance) the economy.

There are several possible economic benefits in the delay. The most important is that if they declare a recession when a normal person might notice one, they may fear that everyone will get depressed and stop spending and investing, which is sort of what a recession is anyway. So they must wait until they're sure that everyone is depressed and has stopped spending and investing before they depress anyone further.

Second, the delay itself generates a lot of economic activity. As when the Pope is dying, the news media gather to speculate ... and speculate ... whether the economy has entered a recession. Widgets and commemorative gold coins can be sold during the commercial breaks. And it's good for the economists as well. They make a mint going from talk show to talk show to offer their expert opinions on whether the economy is in recession. Others are off to conferences to speak to business leaders, and some get invited to the White House. Why spoil a good thing by stating the obvious?

Then there may be political considerations in the delay. Why ruin your chance for an invitation to the White House by contradicting a President who's on TV telling everybody that the economy is "basically sound"? No economist who hopes to get ahead, I dare say.

Another political drawback of an early announcement is that once a recession has been declared, it begs the question of what political leaders intend to do about it. What they normally do about it, of course, is to consult with economists.

It is on these occasions that one school of economic thought has the opportunity to sweep past its rivals and become politically dominant. Will the President turn to monetarism or neo-Keynesianism, neoclassical economics or something less orthodox such as the Ron Paul-style laissez-faire economics of the "Austrian school"? The only real constraint on our Dear Leader is that he not be seen in the company of socialists, since all the other systems more or less assure the well-being of the upper class—the argument among them concerning to what degree.

Is this a recession or a depression?

Well, now that we have a recession, I am personally holding out for a depression. But I will get no satisfaction from the Cardinals. They write in their Q&A—

Q: Does the NBER identify depressions as well as recessions in its chronology?

A: The NBER does not separately identify depressions.... The most recent episode in the United States that is generally regarded as a depression occurred in the 1930s. The NBER determined that the peak in economic activity occurred in August 1929, and the trough in March 1933. The NBER identified a second peak in May 1937 and a trough in June 1938. Both the contraction starting in 1929 and that starting in 1937 were very severe; the one starting in 1929 is widely acknowledged to have been the worst in U.S. history.... [J]ust as the NBER does not define the term depression or identify depressions, there is no formal NBER definition or dating of the Great Depression.

The Cardinals acknowledge that some momentous economic event occurred that began in 1929. Just what it was they're either not sure or not prepared to say. So let's just call it the "Great Recession."

The Great Recession

Economic statistics can be fun if you don't take them too seriously, but at best they're an abstraction. The more imaginative among us can perhaps use them to weave a tale of reality, but I hardly see why that's necessary since I can look out the window.

The day before Thanksgiving, a quite cold day, I passed an old man by the road gathering firewood. Not the sort of thing you expect to see in a First World country. I drive by the temporary labor offices and see there's not enough room inside for the waiting-for-work to stay warm. They stand outside and shiver. For Food Stamps you need to call and make an appointment—if you can reach the switchboard, that is. "For sale" and "foreclosure" signs provide the Christmas decorations. And I live in a zone that is reasonably prosperous and unaffected, by comparison with the rest of the state.

Meanwhile the federal government spends billions by the week in pointless wars in Iraq and Afghanistan and wastes almost as much through its efforts to privatize and conceal them.

How long must this situation be endured? Let's turn to the College of Economic Cardinals to find out—

Q: How long does the committee expect the recession to last?

A: The committee does not forecast.

Well, if the Cardinals aren't telling, Chris Isadore has gotten a few members of the economic priesthood to speak out of turn—

... several economists said the real concern is that there is no end in sight for the downturn.

Some suggested that the best case scenario for the economy is that it would reach bottom in the second quarter of 2009. And even if that happens, that would still make this recession the longest since the Great Depression.

And to think that we just now noticed!

Related post
The Depression Chronicles – 1: Bankruptcies (4/19/08)

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Footnote

1The NBER also tells us what a recession is—

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough.

So we're somewhere past the peak and heading for the trough, though some individuals and corporations have raced ahead and are already at the trough. Take that as you will. [back]

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