Category Archives: Business Cycles

The Bureau of Economic Analysis recently revised its third quarter growth estimate to -0.5%. They will release the fourth quarter figures on January 30. If they are negative, as is widely expected, GDP growth for the whole year may well go negative, too.

By my calculations from BEA data, all it will take (for real GDP, not nominal) is -0.79% growth. Well within the realm of possibility.

What would this mean? Even in these hard times, the American economy will still record the second-highest real GDP in human history. For any country. In any time period. Ever. And this in a recession! Remarkable.

Times are tough, to be sure. But they’re not nearly as bad as most people believe.

L. Glenn Hubbard used to be the chief of President Bush’s Council of Economic Advisers. In today’s Wall Street Journal, he and co-author Christopher Mayer worry that “without policy action house prices are likely to continue falling.”

As someone who would like to own a home someday, I might argue that low housing prices are not necessarily a bad thing. Is there any compelling reason why it’s ok for housing prices to go up, but not down?

This of course, is only the beginning of the article.

They go on to encourage lenders to offer sweetheart mortgage rates to people who may not purchase homes under normal market conditions.

Think about what happened the last time the industry did this. This is terrible advice!

Our economic troubles were caused in part from borrowing too much. The Hubbard and Mayer solution is to borrow even more. They say this without any trace of irony.

It is becoming easier to understand why so many of President Bush’s economic policies were so misguided. With advisers like Hubbard, who needs enemies?

The first revision for the first quarter’s GDP is in. Originally figured at 0.6% growth, it is now pegged at a slightly better 0.9%.

That’s not exactly record-setting growth. But the consensus seemed to be that the revision would be downward, perhaps even negative. So good news.

Short answer: no.

The reason is that GDP is growing, according to numbers released this morning. It grew 0.6% last quarter. A recession is defined as two consecutive quarters of declining GDP.

Now, 0.6% is certainly slower than we’d like to see. It may even be revised downward in the coming weeks. We all know the economy is not in ideal health right now.

But a recession? Not according to the definition economists have exclusively used for decades.

That doesn’t make for very exciting news. But there’s an easy way around that: just make up a new definition for “recession.” Make it mean anything you want it to.

Josh Bivens of the Economic Policy Institute did just that. What he told CNN certainly sounds more exciting than the bland truth:

“Despite the barely-positive growth, we are almost certainly in a recession. There’s nothing magical about staying above zero.”

Bivens might as well be a character in Alice in Wonderland:

‘When I use a word,’ Humpty Dumpty said, in a rather scornful tone,’ it means just what I choose it to mean, neither more nor less.’

It is important that when we use a word like recession, we all mean the same thing. Confusing people by introducing multiple definitions doesn’t do anybody any good. Well, except maybe for reporters and press-hungry pundits.

“Nearly three-quarters of all Americans think the economy is in a recession, according to a national poll released Monday,” reports CNN.

The facts on the ground are quite different from what people think. GDP grew last quarter, therefore we are not in a recession. A recession is defined as two consecutive quarters of declining GDP.

Growth has certainly slowed recently. There’s a chance it could even go negative this quarter. Still, odds are that this year’s GDP will be higher than last year’s. By the way, that would qualify for an all-time record high.

Things could be better, for sure. Still, it is a pity that so many people systematically think things are worse than they are.