Dear Wonks: We ARE In A Recession
Or, Why Your Worries About Double-Dipping or A “Second” Recession Are Utterly Preposterous And Make You Seem Completely Out Of Touch With Reality
While doing some reading over the weekend, I came across this blog entry by Brad Plumer over at the Washington Post’s Wonkblog (the one headed by Ezra Klein) about the Bush tax cuts expiring and how that will affect the economy:
To put this in perspective, the Federal Reserve expects the economy to grow at a roughly 2.9 percent pace in 2013. If Congress does nothing at the end of this year, much of that growth could be wiped out, and there’s a strong possibility that the United States could lurch back into recession. (Granted, a lot could depend on how the Fed reacts in this situation.)
That bolding is my own emphasis. And it really irritates me.
I know that the National Bureau of Economic Research, the official decider of recessions and other economic forecasts, declared the Great Recession to be officially over in 2009. I know there is an official, academic definition of recession: two consecutive quarters of negative GDP growth (otherwise known, in normal person English, as “GDP shrinking.”) I know this is what Brad is talking about when he says “lurch back into recession.”
But when you look at the numbers from other aspects of the economy, it’s hard to say that right now we’re in a “recovery.” Just look at the unemployment statistics:
- 8.1% unemployment rate, which means roughly 12.5 million Americans are still pounding the pavement
- 6.4 million Americans are out of the labor force, yet still want a job (and yet can’t find it)
- 7.9 million Americans want full time work, but are forced to work part time because of the economy (which cuts into their earnings and therefore their wellbeing)
- If we take the real indicator of how terrible our economy is, U-6, which includes the unemployed, underemployed, marginally attached workers, and discouraged workers, we find that the real unemployment rate is 14.5%.
This is a recovery?
The Consumer Metrics Institute has this to say about the GDP figures over the past year, and what they really mean:
In their “advanced” estimate of the first quarter 2012 GDP, the Bureau of Economic Analysis (BEA) found that the annualized rate of U.S. domestic economic growth was 2.20%, down more than three-quarters of a percent from the fourth quarter of 2011. The vast bulk of the downturn was in commercial activities, with both fixed investments and inventories lowering the headline number substantially. Consumer spending on both goods and services improved slightly, and the ongoing contraction in governmental spending moderated somewhat. The BEA’s bottom-line “real final sales” improved about a half-percent to an annualized growth rate of 1.61% — hardly robust and certainly not the kind of numbers we would expect to see nearly three years into a recovery.
Once again the BEA has used “deflaters” that will strain the credibility of the public, especially if they buy gasoline. To correct the “nominal” data into “real” numbers the BEA assumed that the annualized inflation rate during 1Q-2012 was 1.54%. As a reminder, lower “deflaters” cause the reported “real” growth rates to increase — and once again very low seasonally adjusted BEA inflation “deflaters” have been the headline number’s best friend. If the raw “nominal” numbers were instead “deflated” by using the seasonally corrected CPI-U calculated by the Bureau of Labor Statistics (BLS) for the same time period, nearly the entire headline growth rate vanishes — and the resulting growth rate would have been a minuscule 0.08% with “real final sales” contracting.
I understand why some wonks may consider that right now, we’re not in a recession, but to the millions of Americans who are out of work, who are seeing their savings evaporate as the cost of living increases every year, there has not been any sort of recovery. The 2007 recession did not end in 2009, but has continued until the present day. Government stimulus did absolutely nothing to change that, only increasing public debt to absurd levels. Quantative Easing and “Operation Twist” only made banks’ excess reserves bloat, and inflamed commodity speculation that helped raise food and energy prices, making it harder on all of us. And the passage of Obamacare, an absolute nightmare of confusing regulations, vague demands, with an unsettled legal standing, has led to so much uncertainty for businesses that they are adopting a “wait and see” approach—which means they won’t hire new employees, won’t borrow or lend, and generally aren’t going out there and trying to dramatically grow their business, which would grow the economy. (Yes, there are exceptions, notably in the technology sector, but they’re just that—exceptions.)
Dear Wonks: We are in a recession. Right now. Worrying about falling into it again is a moot concern. (And with so many wonks in DC, well, this is why people don’t trust Washington. It’s out of touch. With reality.)