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Call It Whatever You Want, The Economy Sucks

No ‘recession?’ Ok, how about we call it ‘stagflation?’

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Earlier this week, I wrote about the ginned-up controversy over the true meaning of “recession.” Second-quarter GDP estimates are coming on Friday, and the Biden administration fears it will show two consecutive quarters of negative economic growth, the traditional definition of a “recession.”

Today, the compliant press did its thing. Paul Krugman, who not long ago was predicting a Biden Boom, asks, “Recession: What Does It Mean?” Two negative quarters of GDP growth are not, argues the columnist, “how recessions are defined; more important, it’s not how they should be defined.” Perhaps that’s true. One would take Krugman’s assertions more seriously, however, if he could point to a single instance in which two quarters of GDP contraction were not defined by the economists or the media — or him — as a “recession.”

“Getting people to understand that and the nuances of our strange, vexing, economic moment is just really hard,” explains Politico’s Ben White. Things always get exceptionally opaque and weird when Democrats face bad economic news. Everything becomes just incredibly complicated.

“By one common definition — the economy shrinking for consecutive quarters — the U.S. economy is on the cusp of a recession,” writes the Associated Press. “Yet that definition isn’t the one that counts.” It was the one that counted in February of 2020, the first quarter the GDP contracted, during the short Covid recession, an inorganic economic event instigated by government policies. There was no debate over the complex number crunching needed for the official designation of the National Bureau of Economic Research.  

The Washington Post’s Aaron Blake claims we’re in “another hugely important political debate over the definition of a word: ‘recession.’” Another? When did we ever have a “huge” national debate over the meaning of recession? It is certainly true that economists engage in nuanced arguments over how and when to categorize downturns all the time. There is no perfect definition because economics isn’t an exact science. On rare occasions, as was the case in the early 2000s and 1960s, a recession was declared when contractions did not occur in consecutive quarters — but always when they have.

My sense is that the Biden administration is attempting to put political pressure on the NBER. The media’s go-to lefty economist Dean Baker says the “NBER would be laughingstocks if they said we had a recession when we were creating 400,000 jobs a month.” Would they? The 3.6 percent unemployment rate is highly misleading. This weird economic situation we’re experiencing works both ways. The president, of course, doesn’t “create” any private-sector jobs. What he did help create is inflation. And, in context, job growth has been anemic under Biden — still more than 3 million fewer jobs have been filled than in the pre-pandemic economy. The labor participation rate remains at historic lows. It’s not a positive economic signal that available jobs aren’t being taken.

Then, there is the inflation, surging more than 9 percent over the past year. The Fed is going to have to raise interest rates to combat it. The president is now bragging about falling gas prices (shouldn’t we be thanking Putin, who controls commodity prices?), but that too is a function of lower demand. Also, not a promising sign. The S&P Global says private-sector output dropped “sharply” in June. The housing market is cratering. And consumer sentiment is at historic lows.

As a political issue, it doesn’t very much matter if this quarter’s numbers show that we’re in an official recession or not. Even if we concede that a “recession” is a malleable idea, a slippery designation, most Americans aren’t acting like they’re living in the “fastest-growing economy in the world.”

Let’s come up with another designation. Now, “stagflation” is generally — though not technically! — defined as slow economic growth paired with relatively high unemployment and inflation. But this is a truly vexing economy. So, let’s just call this stagflation.


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