Posts Tagged ‘contraction’

Just words

29 October 2009

This week’s news from the Commerce Department is that real GDP grew at a 3.5% annualized rate in the 3rd quarter of 2009, which is the best quarterly growth rate in two years.  And some economists, including the National Bureau of Economic Research’s (NBER’s) Jeffrey Frankel, are saying the recession probably ended sometime this summer.  Meanwhile, a poll of MSNBC readers finds that 82% think the recession is still raging, 9% think the economists are right, and 9% don’t know.  (Yes, online polls are unscientific, but earlier, professional surveys I’ve seen of the public also found them to be more pessimistic about the economy than the experts.)

Are the economists that obtuse, or is the public that dumb?  Even if one’s preferred is answer is “Both,” I think the split is due to two different definitions of “recession.”  The NBER and the economics profession define a recession as a general period of economic decline, whereas I bet most people define it as a weaker-than-usual economy.  I would argue for throwing the word out altogether when discussing the economy.

  • Use “contraction” to denote a period of actual decline, just as the 1929-33 collapse was called the Great Contraction.
  • Use “depression” to denote a period of economic weakness, just as 1929-early 1941 was the Great Depression.  I argued in March that we were in a depression, but if “depression” sounds too harsh because people associate it with the Great Depression, then say “slump.”

Right now, the different professional and public definitions of “recession” (just as with “money” and “investment”) just makes economists seem that much more out of touch.


Stabilizing or flatlining?

14 August 2009

Among the latest signs of recovery are positive GDP growth rates for Germany and France in the second quarter of this year.  The media, apparently tired of reporting bad news, are trumpeting this as sensational news, which it really isn’t.

Both of those countries saw real GDP growth of 0.3% (or about 1.2% annualized), which is better than negative, but less than half of what normal GDP growth looks like. (The average for the last 30 years is 2.9% per year.) And in a real, robust recovery the economy is supposed to grow faster than normal; it has to, to get back to its potential. If GDP in those two countries had fallen by 0.1%, they would still be considered to be in recession — should so much importance be attached to a difference of 0.4% in a three-month period?