Defining "Over"

21 July 2003


Recession Ended 20 Months Ago

The National Bureau of Economic Research has brought the art of economics into disrepute by making the announcement last week that the business trough of 2001 began in March of that year and continued until November. Since then, the US economy has been in recovery mode, according to the NBER. That would be news to the 938,000 who have lost their jobs since then.

The NBER does undertake a bit of backside-covering in its report by saying, "In determining that a trough occurred in November 2001, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity." In other words, they knew that the economy was better, but businesses and consumers just didn't know it yet.

Apparently, what muddied the waters for the committee was the increase in productivity. Now, that sounds good, but what it means is getting as much or more done without new hiring. Working existing staff harder and longer is another way to put it.

Lately, the NBER has decided that GDP should be given more weight in its deliberations, making it easier to determine when the downturn ended. But, they need to remind themselves of what GDP means. In a nation of 100 people with a GDP of 100 million, there could be 100 millionaires or one person with 100 million and the rest are dirt poor. And in a democracy, it is very dangerous to have a lot of poor people without hope of a paycheck.

In the west, having a job means having a degree of prosperity. Unemployment means scraping by on the dole, borrowing, and doing without. Defining a recovery as a rise in GDP, or a climbing stock market, or increased spending is only useful to a degree. Employment has been a "trailing" indicator of economic recovery before, and it will be again, but only because it is not the key measurement used. It has been defined into the trailing category.

Here's an idea -- define a recession as any time the unemployment rate exceeds 4% or rises two quarters in a row. By those terms, the recession is still on, its been going on a while, and the perceptions that people have about their jobs, their bank accounts and the stock portfolios cease to be hallucinations and become accurate assessments of reality.