Is The US In A Recession? Perhaps, But What Kind?

In a rather serendipitous turn of events, America is conducting its own version of an Intelligence test regarding the US’s Economy. Unlike the one’s posted here; the US’s test is not a short one; nor is it intended to provide any information of useful value. This is unfortunate because the nation would greatly benefit from using the information that polling data provides in conjunction with other economic data about our economy to inform, educate, and aid the public in their own ability to benefit from what the test(s) can teach us.

A recent poll indicated the majority of Americans (56%) believe that we are already in a recession. This result has of course produced lots of political energy. Which of course means that our political parties eagerly attempting to use the recession issue to their advantage in this mid-term election year.

How is this poll an intelligence test, you may wonder? Well, that should be obvious but if it is not then even that is a minor intelligence test. If 56% think we are then 44% think we are not; and at a basic logical level they can’t both be right, can they? Thus, it’s a test; and represents something about what is known or understood and a small measure of intelligence.

Let’s do a slightly more informative test about the recession question. We can then decide if the poll results are a favorable measure of our national intelligence or not.

Question 1: What is a “recession”?

Question 2: How has the “recession” impact you personally? Have you lost your job or has your income decreased?

Question 3: What do you see as causing the “recession”? [choose all that apply]: A. Government policies B. COVID relief payments C. Increase Interest Rate by Fed D. President Biden E. Former President Trump F. Congress G. Supply-Chain Disruptions H. COVID pandemic I. Inflation J. News Media K. Consumer purchasing behaviors L. Businesses’ reductions in production M. Climate Change N. Things that you think caused a “recession”: _______

Question 4: Are there any benefits from a recession?

Question 5: Do you think the US is in a recession now, and what conditions support your assessment?

Answer to Question 1: This is an important question because if you don’t know what one is then what does your answer mean. Now getting the right answer is actually difficult because it depends upon who you are and how you are assessing it. An “official” recession is defined by the National Bureau of Economic Research (NBER), which officially declares recessions. The NRER says a “recession” is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

Notice the word “significant” in their definition. Clearly you agree that you and I mean exactly the same thing when determining what “significant” means in this context. Has GDP been declining for a few months? Yes. Is that a recession? Remember that the test question. Has real income declined for a few months? Yes. This is due to inflation. Has employment declined for a few months? No. Has industrial production declined for a few months? No. Has wholesale-retail sales declined for a few months? No. Hmmm! What was the public thing the US’s recession was? Because the NBER’s definition doesn’t fit the data that theirs requires. I am not saying that the US is not in a recession. I am just saying that I don’t know what others mean when they say the US is in a recession. Maybe the poll results just mean people are tired of complaining about “Inflation” and saying that their concerns are now about the “recession”. We may be doing everything we can to drive the US into a recession, but that doesn’t mean we are there. Since we are a Consumer-driven economy, convincing ourselves that we are in a recession may be a self-fulfilling prophecy. Efforts to confront inflation, which the same public has been demanding even longer than they have been concerned about a recession, will drive some change in consumer behaviors and that will impact the economy. Whose fault is it or will it be? See an earlier Short American Intelligence Test.

Answer to Question 2: Only you know how you’ve been impacted by the state of our economy. But most of those impacts have come about from the impacts of the COVID pandemic; like the high inflation the world is suffering under.

Did you lose your job in the last six months? Did your income decline? Again, only you know that. But was it from a recessionary causal agent or was it a result of inflation, or perhaps a result of the nation’s economic recovery processes from COVID? But how is that impact due to a recession which doesn’t meet the ‘official’ definition? And why would we think that what the 56% of the population meant was a common understanding? How much of it could be not an economic view but some other perspective, like political?

Answer to Question 3: There is no good answer here if we don’t know if the US really is in a “recession” or not. To provide something you can consider in what you selected as causal factors the following may help or just annoy you. Note: Whatever factors you add to this list in your choice of N items cannot be anticipated in the information below. The best I can offer is to use the following as guiding principles to assess your own inputs.

Choices K – Consumer spending and L – Business spending are clearly causal for a recession. This doesn’t mean there is or isn’t currently a “recession”. But what consumers and businesses decide to do, for whatever reason, can bring about a recession.

Choice I - Inflation often causes a recession, but it is not a necessary and sufficient condition that requires that a recession will occur nor is it required to proceed a recession.

Choices A – government policies and C – Fed Interest Rate increases can cause inflation, they can cause a recession, or they can cause both; or it may not have either harmful impact on the economy and actually be beneficial. Actions taken by our government, especially when it is directed at ‘accomplishing’ some economic goal, is not only capable of creating negative economic outcomes but quite often fail in their goal(s) and reliably result in negative consequences.

Choices D - Biden, E - Trump, F - Congress, and J – News Media are actors who can direct the types of Choices that A – government policies will be and how they are executed. They never take their actions with the “intentions” of creating inflations, recessions, or other economically damaging outcomes. However, they often do act without a competent understanding of an issue or the implications that their actions will produce. Note: J – News Media is contributory to the efforts of politicians either by promoting their actions and/or failing to report on the risks and downsides that might result from them.

Where these Choices causal to our current Inflationary conditions, and to the Recessionary period that has started or might start in the future because of yet to be produced outcomes. Yes, I am sure that there is plenty of blame to go around, but none of them will admit it; and the partisan sides will eagerly blame the other.

Choices B – COVID relief payments is one of the current factors blamed for the Inflation, it would be expected that it will also be blamed as causing a recession. It’s much more complicated than either of those views, and is an intelligence test of those who argue affirmatively for either.

Choices G – Supply-Chain Disruption and H – COVID Pandemic are “conditions on the ground” that created and impact lots of economic variables. They were, are, and will be causal agents for Inflation and for a Recession. That they have a ‘causal’ influence doesn’t mean that we are currently in a recession.

Choice M – Climate Change. I suspect that item may have come as a surprise, but it has impacts on the economy. It can and has played a part in the current Inflation. It will also have an impact on a Recession. It is just another factor that adds to the complexity of efforts to manage the economy.

If you had any N Choices, you will have to figure out on your own what that means regarding whether or not we are in a recession. Hopefully the answers for the other items may provide some insights into how you would assess these other items.

Answer to Question 4: Yes, there are. This will probably upset some people or everyone but that doesn’t mean that there are no benefits that come from a recession. Note: I am not stating that we are currently in a recession, only that there can be benefits from a recession.

One aspect of a recession that is regularly overlooked is that it is part of a economic correction process when inflation has significantly impacted the economy. During a recession, both consumer and business spending get directed at more essential need areas and away from more discretionary. This causes reduced demand for some products and services which can reduce their costs, especially that part of those costs that were inflation driven. Recession can also promote innovation and shifts in consumption behavior which offers opportunities. To accomplish a reduction in Inflation, a highly sought-after goal, accomplishing that can require some recessionary impacts on the demands that contributed to the inflation.

Answer to Question 5: Have we been in a recession for several months? We have been in an inflationary period for months, but the question of being in a recessionary period is unfortunately ill-defined. Because we lack a general and widely accepted definition of what it means to be in a recession, it is quite problematic to expect agreement due to a large number of factors and reasons.

There is the emotional aspect of how many see the question. Fear, anger, politics, and viewership can all be playing to our emotional brain. Not the kind of reasoning and logic that you want to base economic decisions upon, but unfortunately these emotional trends do have to be factored into how the government responds, how businesses respond, how consumer respond, and how unfortunately the news media and social-media respond.

On an Economic perspective, the question is equally vague but again mostly because of an ill-defined standard. Add to this, whether the need to respond to the public ‘angst’ over high Inflation requires a degree of recession. If you want prices to drop and the government is limited in the tools and processes that it controls, creating some level of a recession in various areas of the economy may just be required. If our political leaders were more intelligent, they might be able to reduce, minimize, or prevent a recession but that’s a “wish it were so” solution. The least that the could do would be to stop promoting a recession as an election opportunity when they do not offer a solution that they put their job on the line for.

AT THE END OF THE DAY

Are we in a recession? It would seem we have to wait and see. Perhaps we need to pick between accepting too high Inflation or some level of a Recession. What would you pick? The former guarantees disaster.