Henry points to “Amity Shlaes at the Washington Post telling us that Americans are too whiners.” In her column Shlaes says of Phil Gramm’s comments,
Gramm was right about the recession and stood by his recession comments on Thursday. A recession is two consecutive quarters in which the economy shrinks, and last quarter it grew.
Now, that’s not actually what the Business Cycle Dating Committee of the National Bureau of Economic Research says.
Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER’s recession dating procedure?
A:: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. According to current data for 2001, the present recession falls into the general pattern, with three consecutive quarters of decline. Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, “a significant decline in economic activity.” Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology.
Other indicators matter as much or more than GDP growth because they measure economic hardships we feel. Or, as Paul Krugman says,
The point is that the official definition of recession has become delinked from peoples’ actual experience. Right now, we’re in an economy with deteriorating employment and incomes, collapsing home prices, and business retrenchment. Is it also an economy in recession? Who cares?
Indeed, Shlaes recently knew this; in her book on the New Deal she never discussed GDP growth. The US economy grew quite rapidly through much of the 1930s. Yet it would be foolish, given the high unemployment rates that continued to prevail, to claim that the Depression had ended. (“Was ending” is another matter; if you point out this rapid GDP growth and if you correctly measure unemployment, you have to admit the economy was recovering during the New Deal.)
It is possible that Shlaes has forgotten what she knew when she wrote The Forgotten Man. It is also possible that now, as then, she takes a situational view of statistics.
8 comments
July 13, 2008 at 8:39 pm
SomeCallMeTim
That Slate column is fantastic.
July 13, 2008 at 11:15 pm
urbino
Totally off-topic, but: WTF?
July 14, 2008 at 12:30 am
andrew
No kidding.
July 14, 2008 at 12:31 am
andrew
(That blockquote was an excerpt from urbino’s link, if that’s not clear.)
July 14, 2008 at 12:38 am
Ben Alpers
Megadittoes to what SomeCallMeTim said.
And urbino: at least we now know what we’ll be talking about all week!
July 14, 2008 at 5:43 am
neocynic
I’m neither a historian nor an economist, but I know a smackdown when I see one. Tim is right–that Slate piece is great.
July 14, 2008 at 6:32 am
eric
Thanks, everyone.
July 14, 2008 at 8:14 am
Walt
Yeah, you should consider asking that guy to write here.