"Please Stop Calling It A Recession"
I came across this article where a blogger rants calling anyone a fearmongerer who dares to call the current state of the US economy a recession (the following comments are even worse). This is on a tech blog, not an economic one, mind you. I stopped reading it after the first paragraph because his argument appears to stem from an emotional objection to a recession than an intellectual objection. This wishful thinking seems to be pretty commonplace in regards to the economy. I do believe we are in a recession, though I'm no economist (I've only been visiting mises.org regularly for the past few months). I believe the folks here at mises predicted a recession many months before the media ever picked up on it. I'm hoping someone here can give me a real assessment of the situation, and perhaps leave an intelligible comment for the blogger, Mr Mark Hopkins, and his visitors. Thanks
What I got from that blog:
The US GDP is super high, and anyone who think's were in a recession is just ignorant, etc.
What a beacon of intellect and economic breakthrough!
I think it may be too soon to call what we're in a recession. Technically, a recession is defined as two consecutive quarters of falling GDP. There is obviously some concern though, just take a look at the current fed interest rates...
The question is, of what value is GDP? It measures velocity, not quality.
If the government bought all of the dung in the world, that might raise GDP. Would the citizens be better off having cornered the market on crap?
Leftists say our economy is an example of "free-market capitalism" and use bad economic news as proof that we need more restrictions.
Rightists fall for the leftists' trick and defend our "free-market" economy, insisting that things aren't as bad as the leftists say.
Don't allow leftists to play games with definitions! Some of the libertarian-leaning leftists at this forum will try to redefine "left-wing" back to its original defition (Third Estate, limited government, free-markets, laissez-faire reforms, etc.). Fine! We non-leftists can't stop them from using their own personal definitions; they can use whatever labels they want to describe any concept they want.However, they have the audacity to then use their personal definition of "left-wing" (remember, the original definition, which is no longer valid) to prove that modern leftists are more libertarian than modern rightists! They will say that libertarianism is "inherently leftist" (again, using the original, no longer valid definition), and use that to insist that we should prefer and side with modern leftists over modern rightists.
Question their motives.
Haha, that's what some university professor taught my class in history when we were studying the Great Depression. On the test for it I essentially had to say building pyramids would be "good for the economy".
Does this look like a recession to you?
Do you dispute the fact that we have positive real GDP growth? First quarter 2008 numbers can be found here. As far as I can tell the media blew this slowdown out of proportion. The interesting thing is that the inflation caused by the Fed trying to avoid a recession will probably cause a recession.
"I cannot prove, but am prepared to affirm, that if you take care of clarity in reasoning, most good causes will take care of themselves, while some bad ones are taken care of as a matter of course." -Anthony de Jasay
Solid_Choke:As far as I can tell the media blew this slowdown out of proportion.
Dude, the entire banking structure almost imploded...
Looks like a recession to me, everything is slowing down except exports (at fire sale prices) and government spending.
There's even a chance that the 0.6% growth could be a statistical anomaly and the figures are revised downward at a future date, they do that all the time especially around events that don't exactly fit the model when they "seasonally adjust" the figures.
Solid_Choke:The interesting thing is that the inflation caused by the Fed trying to avoid a recession will probably cause a recession.
They are only delaying the inevitable and are making it worse in the process.
There's actually a whole theory that describes events like this...
Is the term "Short Term Asset Price Correction from an Over Supply of Credit" better?
That is a recession!!!! This "generally accepted definition" is just a convention.
Well on GDP there is this... Standing Keynesian GDP on Its Head
Freedom of markets is positively correlated with the degree of evolution in any society...
Jon Irenicus: Well on GDP there is this... Standing Keynesian GDP on Its Head
Actually New Keynsians have written whole books about the problems with GDP but without any better alternative that is readily available there isn't much sense in not using it. On a whole it helps to understand what is happening in the macroeconomy and shouldn't just be thrown out without a better measure to replace it. It is just one tool among many.
Solid_Choke:Actually New Keynsians have written whole books about the problems with GDP but without any better alternative that is readily available there isn't much sense in not using it. On a whole it helps to understand what is happening in the macroeconomy and shouldn't just be thrown out without a better measure to replace it. It is just one tool among many.
Of what value is GDP? Yes it is a tool. But why use it at all if it is deeply flawed?
liberty student: Solid_Choke:Actually New Keynsians have written whole books about the problems with GDP but without any better alternative that is readily available there isn't much sense in not using it. On a whole it helps to understand what is happening in the macroeconomy and shouldn't just be thrown out without a better measure to replace it. It is just one tool among many. Of what value is GDP? Yes it is a tool. But why use it at all if it is deeply flawed?
What do you use to determine past or current recessions if not production? Unemployment? Stock market prices?
I can, but the one Jon posted deals sufficiently with GDP as a measure of growth IMO. Reisman's measure of production is a superior one to the GDP. In general, it's best not to trust measures like the CPI, GDP &c. because they're constructed to omit significant data, and tend to have bad economics behind them. Reisman's GNR is one example of a measure of production better than GDP. As for general criticisms of macroeconomics, Garrison's "AS AD: A sad development in economics" (IIRC) is a good introduction.
banned:Haha, that's what some university professor taught my class in history when we were studying the Great Depression. On the test for it I essentially had to say building pyramids would be "good for the economy".
That would have been very appropriate. President Roosevelt was killing the economy, so he needed a place to bury it. ;)
Equality before the law and material equality are not only different but are in conflict with each other; and we can achieve either one or the other, but not both at the same time. -- F. A. Hayek in The Constitution of Liberty
Not to be argumentative, but why do we need GDP to determine recessions? As an entrepreneur, I want more specificity (I may have made that word up) about what is happening in the economy, than generalizations like growth/recession.
GDP suffers from lagging. I don't think it is useful except to confirm market behavior that has already occurred.
Some ideas to consider
Inquisitor: I can, but the one Jon posted deals sufficiently with GDP as a measure of growth IMO. Reisman's measure of production is a superior one to the GDP. In general, it's best not to trust measures like the CPI, GDP &c. because they're constructed to omit significant data, and tend to have bad economics behind them. Reisman's GNR is one example of a measure of production better than GDP. As for general criticisms of macroeconomics, Garrison's "AS AD: A sad development in economics" (IIRC) is a good introduction.
Where does he outline this measure and how is it collected? Is it explained in his book? Thanks for the Garrison tip. I still don't think we should throw current New Keynsian and neoclassical macroeconomics out the window just because it is flawed but I will familiarize myself with the concepts you have directed me to. Also I agree that the CPI is mostly bunk.
If anyone is wondering I am not really an Austrian but something of an Austro-New Keynsian. Anyway, I don't think praxeology is the only way to do good economics. To me it is just one tool of many.
He offers a general outline in that article I posted.
Praxeology is the foundation of all economics - it is not a tool, it is the discipline's very basis. If, however, you can incorporate Keynesian insights that are not nonsensical, then all the better; there's nothing wrong with that. Personally, I think the Austrians can gain far more from the Public Choice school, and that is where they should be directing fruitful discussion towards, and not the (neo-)Keynesians. Just so you're aware, Reisman is an Austro-classical economist; he's attempted a fusion of Austrian and classical economics, so he might interest you. Garrison has also written extensively on a possible Austrian macroeconomics (in his Time and Money), and I believe he demonstrates in which regards it is superior to competing alternatives, so be sure to pick it up if you're interested.
Inquisitor: He offers a general outline in that article I posted. Praxeology is the foundation of all economics - it is not a tool, it is the discipline's very basis. If, however, you can incorporate Keynesian insights that are not nonsensical, then all the better; there's nothing wrong with that. Personally, I think the Austrians can gain far more from the Public Choice school, and that is where they should be directing fruitful discussion towards, and not the (neo-)Keynesians. Just so you're aware, Reisman is an Austro-classical economist; he's attempted a fusion of Austrian and classical economics, so he might interest you. Garrison has also written extensively on a possible Austrian macroeconomics (in his Time and Money), and I believe he demonstrates in which regards it is superior to competing alternatives, so be sure to pick it up if you're interested.
I will. Thanks for the advice.
Hi,
Certainly not an expert on economic statistics, but I can point some of you to an interesting article on the value of current government economic reporting. For those of you who haven't seen Kevin Phillip's recent Harper's article on this subject, here is the online version of, "Numbers Racket: Why the Economy is Worse than We Know".
http://www.tampabay.com/news/article473596.ece
Bottom line: Phillips follows the efforts of private economists (most notably, John Williams of Shadow Statistics) who have compiled their own data on GDP, inflation, and employment, and concluded that government reporting of economic numbers has become increasingly twisted and misleading over time.
As some have already mentioned, the nation's economic growth, if measured in real terms (accounting for true inflation) would likely show a recession already underway.
See also, the related articles and links in this post:
http://financetrends.blogspot.com/2008/05/bloomberg-surviving-slowdown.html