Worldview Item of the Day
The National Bureau of Economic Research, a non-partisan, private group of economists who track trends in the economy, has declared that the United States has been in a recession since December 2007. Their claim is based on the decline in payroll numbers in every month since then.
Traditionally, a recession is defined as two consecutive quarters of negative growth in the Gross Domestic Product, a condition which has yet to occur according to any reliable source of measurement.
The NBER joins a long line of agencies, organizations, and individuals who have jumped the gun and cried wolf when there was not one. Certainly, the economy is weak right now, and I believe the last two quarters of 2008 will reveal the US economy to be in formal recession, but the tendency until this point has been to dramatically overstate the nature of the weakness and its likely effects.
I say this because, apparently unlike a lot of other people who pay attention to the economy, I seem to have a broader perspective on the US economy as a whole. I do not deny that the US economy is weaker than it has been in past years, but frankly, I deny that we are in “the worst economic crisis since the Great Depression”.
Look at the facts. The US economy has shed millions of manufacturing jobs, yet to date, US unemployment, the magic number used by the NBER, remains well less than 10 percent. Even if one factors in that those unemployment numbers are low, which one has to then do for any unemployment number anywhere in the world, the US still leads the world with the number of its citizens employed and, therefore, paying taxes.
Meanwhile, The stock market has handed back several trillion dollars in value, yet the US GDP has only contracted 0.5 percent. Interest rates remain at historical lows below 6 percent. When adjusted for inflation, the value of basic commodities like food and fuel remain ridiculously low.
When taken in perspective, the current economic crisis is nowhere near as severe as the problems the US faced in the late 70s and early 80s, which themselves paled in comparison to the Depression. The current US economy is weak, not fatally wounded, and all signs indicate that by the middle of next year, even if a major employer like GM has to file for bankruptcy, the economy will have returned to its former strength.
I believe that what all of these things really show is that the US economy is finally adjusting to its new configuration as a technology economy after twenty years of fighting with itself. Further, I believe that the economy is shedding the weight of the almost unbridled avarice of two decades of investing and financial management that rode our current unprecedented wave of prosperity and growth that spawned things like Enron executives having parties with prostitutes in Greece and auto executives paying themselves millions in bonuses while their companies were failing. I believe that the economy is doing what it always does in times of excess: it corrects and heals itself.
The test of all of this will be what is happening by this time next year. If I am right, the economy will be chugging along again with growth in the 1.5 to 2 percent range. Unemployment will have dropped below 6 percent and maybe even as low as 5.5 percent. And, all of this will have happened in spite of as much as $2 trillion in extra government spending and a single year budget deficit growth larger than $3 trillion.
Of course, I could be wrong, but from my perspective, that is not very likely.