7.02.2008

When is a Recession Not a Recession? When We're too Wonderful to Have One

by Jeff Siegel

I do a lot of writing about the economy, and the one topic that everyone wants to talk about is the recession we aren't having. The discussion has become political, in fact, with those on the right insisting the economy is just fine, save for a few bumps like housing and banking, while those on the left grit their teeth and prepare for the worst.

Why does it matter if we're having a recession? So that we can figure out how to get out of it, which we can't do if we're waltzing around the numbers and shouting at each other. Technically, the United States' economy is not in a recession. That's defined as a decline in the gross domestic product for at least two quarters, and we've had growth every quarter since the last recession after the Sept. 11 attacks. But the growth hasn't been particularly good recently: .6 percent in the fourth quarter of 2007 and 1.0 percent in the first quarter of this year.

So why is the economy acting as if we're in a recession? The stock market has lost 20 percent since October, unemployment is up (though not as much as in previous downturns), and housing is slumping toward a variety of record lows.

That's because we are in a recession. We just don't know how to tell. It has been so long since the last real recession, in 1991, that most of us don't know what one looks like. Meanwhile, the tools we use to measure recession are increasingly outdated. We're still tracking a manufacturing economy when we've switched to an information economy (or whatever the bosses are calling it). Consider these observations:

• The 1991 recession, which ushered the first Bush out of office, was a humdinger. There was a stock market crash, high oil prices, and a credit crisis caused by the collapse of the savings and loan industry. But in 2001, more than one-fifth of the country was younger than 15. That means at least 20 percent of the country has no idea what a recession looks like, unless they're an economist. By the time I was 15 in 1973, there had been two recessions I was aware of, including 1973's epic, the worst since World War II.

• Our statistics are out of date. The federal government hasn't changed the way it measures employment since 1994, despite the changes in the economy. The stock market briefly rallied this week on good statistical news from the manufacturing sector. But, as The Wall Street Journal noted, big deal, given the "manufacturing sector’s decline in being a bellwether of the U.S. economy." In other words, we're getting excited over stuff that doesn't matter much any more.

• This is the best educated group of business men and women in U.S. history. We churn out MBAs in ever increasing numbers, more than 40 times more than in 1955-56. This is giving us a wonderful can't see the forest for the trees moment: If the best educated business generation ever doesn't acknowledge it, it isn't happening.

(Political graphic from Wrapped-in-the-Flag, a website that offers copyright-free political material.)




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