At nearly the same time, the newscasters tell us that the unemployment figures for September were worse than economists expected and that chief economists tell us that “the recession is over” – although they recognize things will be bad for quite some time. I question our use of language, and wonder: WHOSE recession is over?
An analogy: We often experience floods in the upper Midwest; they were particularly severe around Fargo, North Dakota this year. Experts repeatedly measure the height of the water, as well as the actions of governments, communities, and individuals to deal with the threat; the news is full of their reports. A flood is something like a recession in a shorter time frame. But our language is different.
Everyone recognizes that, at some point, the water will stop rising, at which time the danger of utter disaster begins to decrease. Nonetheless, the dikes and levees must still be watched and maintained for a long time, until the water recedes to the normal path of the river. Newscasters emphasize this crest in case it overtops the levees. But no one says that the flood is over when the river crests. In fact, it’s about that time that a disaster area is declared. Plans move from helping people survive the immediate threat to long term clean-up and rebuilding. A flood disaster case will remain open with the American Red Cross and with FEMA for months, even a year or more. The disaster is measured in terms of the people it affects. Until their lives are relatively normal, the disaster is not over.
Measuring recession. There are a variety of measures of recession; the NBER Recession Dating Procedure is the best known and most common. It focuses on several dimensions of economic activity:
“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. “
“Employment” and “Real income” are the measures that average people are most likely to experience. The other elements – real GDP, industrial production, and wholesale-retail sales – measure the ability of the economic system to produce money – profit. If these elements do not show growth, it is very difficult for investors to make money in the economy.
The NBER definition recognizes that recession is part of a business cycle, and describes which part of the cycle is described as a recession:
“A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.”
Whose recession. By this definition, a recession begins at the point where the return to capital invested begins to fall, and continues until it bottoms out – until the economy reaches the point where investors begin to be able to make money on investment. It is not a definition that reflects the lives of most of us. Ben Bernanke, Chair of the Federal Reserve, described it this way in mid-September:
“Even though from a technical perspective the recession is very likely over at this point, it is still going to feel like a very weak economy for some time as many people still find their job security and their employment status is not what they wish it was.”
People’s definition. Economies are complex, making winners and losers out of groups of workers, some types of business, and some locales. We have found ways to summarize the this complexity so that corporations, entrepreneurs, and investors can discuss the state of their economy – the one that revolves around return on investment. Now we need other measures.
Could a group of social scientists develop a measure that would re-balance the NBER’s elements, placing greater emphasis on employment and real income? Could the measure of the the size of the economy be adjusted so that government spending to help people through the trouble doesn’t look like “economic activity”?
Could we get a definition of the people’s recession?