Mimsy Were the Borogoves

Editorials: Where I rant to the wall about politics. And sometimes the wall rants back.

Definitionally dodging recession responsibility

Jerry Stratton, September 28, 2010

How do you know you’re in a recession? When the economy is at its best. How do you know the recession is over? When the economy is at its worst.

The Business Cycle Dating Committee of the National Bureau of Economic Research announcement takes “everything is darkest just before the dawn” to new lows. It’s a very technical definition of “recession” that has no relevance in the real world.

This was how the start of the recession was able to be backdated to December, 2007 when the critical event occurred in September 2008. The economy was doing well in December 2007, and recessions start when the economy is doing well, not when it is doing poorly.

The economy goes up and the economy goes down. The only steady economy is a dead one. Now, imagine that at one of the lower points, an event happens—say, a mortgage crisis—that keeps the economy from its normal ups and keeps it down. When did the recession start? By definition, it didn’t start when the mortgage crisis hit. It started when the economy was at its most recent best.

Bet you didn’t know you were in a recession on December of 2007, did you? Or that you were finally out of it in June of last year. This redefines the abnormal as normal: Steve Benen at The Washington Monthly, for example, jumped immediately on the news and said, hey, it’s okay to raise taxes—we’re no longer in a recession.

That this definition of recession doesn’t have any relevance in the real world is obvious to anyone paying attention to the unemployment rate; but I can’t see how it has any relevance anywhere else, either. It seems to me to be a lot like the guy looking for his lost keys under the streetlamp when he lost them in a dark alley. It’s a lot easier to see but you still aren’t going to be able to drive away until you look in the dark.

While I’m sure it’s easier to look for the start and end of a recession by looking only at the graph, this doesn’t help us avoid unnecessary recessions in the future. Barring the trigger event, the normal activity of the economy is to go up and down regularly. Saying that the recession started at its normal top obscures the fact that this recession had an avoidable triggering event that kept it from this normal cycle.

December 27, 2010: Garbage in, garbage out economics

When your definitions suck, you’ll get gobbledigook. James Surowiecki at the New Yorker can’t understand why, now that the recession is “over”, the economy still sucks. In what Jim Hoft awards the Brilliant Elitist Line of the Day…, Surowiecki writes:

The recession has been over for more than a year now, but so many people are out of work that it doesn’t feel like much of a recovery.

He then goes on to think up all of the excuses for why the economy sucks when the experts say it’s over, without blaming the definition of a recession.

Economists define the start of a recession as when the economy is at a high. The recession is over when the economy is at its lowest point. Economists think we’re at the low point now, so they’ve said the recession is over. The definition of a recession doesn’t care what caused it. All it does is look at the graph. It’s the definition: the reason we’re doing so poorly and the reason the recession has been called as over, are the same thing: we’re in really bad shape right now.

If you’re doing well, economists might look back later and say that you’re in a recession. When you’re doing poorly, they might look back later and say that the recession is over. What they don’t do is look back and say, “these actions were when the recession started, and these actions were when the recession ended.”

When your definitions suck, your answers will suck as well. Like Lincoln’s five-legged dog, you can say that we were in a recession when the economy was doing the best it had done in years, and you can say that we were out of the recession when it was at its worst. But saying it doesn’t give people jobs.

  1. <- Tax event horizon
  2. Election 2010 California ->