As you've probably heard, the
National Bureau of Economic Research (NBER) declared that we
are officiously in a recession, and have been since last December. Now I think that in terms of plain ol' economics, a recession is defined as six months or more of a shrinking GDP. But in reality, someone has to make the call. That would be NBER. So last winter, many people on various media were saying a variety of things ranging from "obviously we're in a recession, but everyone else is too dumb to see it," to "this clearly isn't a recession, because it hasn't been defined as a recession." It was very irritating to see highly paid pundits, reporters and writers, whom I'd
like to believe know more about this stuff than I do, miss the basic point that until we've "been in a recession" for 6 months...
it's not a freaking recession! And officially, even then, it's not a recession until NBER calls it. I would have been so happy to see someone say something along the lines of "All the numbers look recessionary in nature, and we may in fact be headed into one, but because of the way we define it, of course.... blah, blah, blah." You get the idea... just a little reassurance that the damned talking suits on CNN had at least taken a one semester econ course 30 or 40 years ago in high school.
But of course it
has been pretty obvious, at least since late summer/early fall, that this would be called- identified- as a recession. At least I thought so. But the brilliant minds on Waaaaah Street apparently didn't. Because their reaction to the announcement was a drop on the DJI of nearly 700 points- nearly 500 of those points came in the last hour of trading.
So in a magnanimous gesture of goodwill, I herewith offer a real reason to panic mindlessly:
(Thanx to Manx at
A Salute to Some Stuff for this
great picture)
Got that?
Done screaming yet? No?
Now?
It's getting quieter...
Feel better now? Good!
Because it's all an illusion.
Perception is reality, and has very real consequences. But you'd think the traders would have figured that out...
sigh.
(Thanx to Manx at A Salute to Some Stuff for this great picture)
The boys on wall street have no reality. It's whatever they can get away with and hope for a bailout or pardon. Like a large game of musical chairs they don't want to be stuck with all that leveraged stock. Notice today that shorts went up while the market crashed.
ReplyDeleteAnd a fine snarky blog you have here Lockwood.
Everybody knew there was a recession, but the announcement caused a drop. What's the real definition of a recession? Until you know that, and you have a specific complaint about how it is defined, I don't get what you are complaining about, other than the fact that the economy is terrible, which we all know.
ReplyDeleteI guess your point is that they take an incredibly long time to officially declare a recession. That's true, and they are getting a lot of flak for it.
ReplyDeleteDemeur- Thanks! Glad you enjoy it.
ReplyDeleteChris- I guess what I'm snarking about is two-fold: first, it's been clear for nearly a year that conditions are recessionary in nature, and the debate has been all about whether we are or are not in a recession. I point out that almost no one bothers to state how we define a recession, which renders all the muddling debate meaningless at best, scary and destabilizing at worst. The second point is, as you point out, we all know the economy is in the dumps. We "know in our guts" that we're in a recession. Yet the so-called experts on Wall Street somehow seemed startled and panicky that a recession had been "officially" declared, even though in any real terms nothing had changed. It's official only (officious, a jokey, purposeful misspelling). Hence, flying sharks- an illusion created by snapping the camera at just the right moment- is funny, because we all know sharks can't fly. We all know we can't NOT be in a recession, yet NBER says we are, and everybody craps their jeans. I'm not so much complaining as ridiculing.
When does it become a "depression" officially speaking?
ReplyDeletePeople setting up makeshift homes called "Bushville?"
Dean- A depression is not well defined; it is generally considered to be a prolonged and severe recession. But what constitutes "prolonged" and "severe" is not specified. Nor (as far as I know) is any organization officially tasked with making the call, as NBER is with a recession. Some economists have proposed making the definition a 10% drop in GDP- an arbitrary number, but any number would be arbitrary. Again, there is not widespread agreement on this. I suspect that in reality a depression would be called only in retrospect; economists would come to a consensus, looking back on the numbers, that, yes, THAT was definitely a depression.
ReplyDeleteIt's easy to ridicule. They have some bizarre rules for defining a recession, and whatever office it was that issued the report has a strange set of priorities, expeditiousness not being one of them.
ReplyDeleteLockwood-
ReplyDeleteThanks. I've had the feeling it would be pretty ill-defined. It seems to me an actualy depression might be a bit more difficult to come by these days as the middle class, which wasn't around the first time around, wouldn't stand for it. I'm not certain of that but it does seem they wouldn't allow a wholesale drop in status without taking the rich with them.