Dating game: The politics behind the timing of recessions

By on August 17, 2022 0

Few factors hold more sway over voters than the state of the economy. Good economic news works as an implicit but powerful endorsement of the incumbents, while negative news, such as a recession, is equally condemning. But all news is subject to political drift, including economic variety.

The National Bureau of Economic Research (NBER), a private, nonprofit organization, has taken on the task of dating recessions, but the organization’s timing can have political consequences. The NBER waited until the month after the 1992 election to report that a recession had actually ended 21 months prior. That delay gave the Clinton campaign a political club to successfully beat the incumbent, who had supposedly presided over a three-year recession.

The White House says today that there is no recession because the NBER has not yet announced it. While determining the start and end of a recession is inherently a retrospective task, as the data continues to accumulate, the NBER’s lag seems less economic and increasingly political with the midterm elections coming up. weigh on the nation.

Using the past 75 years as context, the economy has contracted nine times for two consecutive quarters, and each has been declared in recession. In addition to these nine contractions, there were three occasions when the economy did not contract for two consecutive quarters, but these periods were also considered recessions.

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Thus, two consecutive quarters of negative growth are not a necessary condition to mark a recession, but a sufficient condition.

The NBER looks at three measures when dating recessions: spread (extent), depth (severity), and duration (duration). But even these requirements are not hard and fast, as they were in 2020.

The recession caused by the government-imposed lockdowns was dated by the NBER as lasting just two months, the shortest on record, and insufficiently long to be considered a recession. However, the economic decline was so widespread and steep – unprecedented – that the NBER still considered it a recession, and rightly so.

Today, the economy has clearly contracted. There are myriad economic indicators pointing to a recession and while the White House is quick to cite nonfarm payrolls and a low unemployment rate as the only two data points in their favor, even those numbers don’t hold up to scrutiny. exam.

The number of non-farm payrolls is one of two measures of the total number of jobs in the country contained in the Department of Labor’s monthly report. But the second measure, from a household survey, actually peaked in March – below pre-pandemic levels – and has been trending lower since then.

And the much-vaunted unemployment rate is so low because labor force participation fell precipitously after social work requirements were removed, millions were pulled out of the labor force, and the unemployment rate artificially lowered.

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Meanwhile, average real wages are falling, home affordability has collapsed, inflation remains high, businesses are cutting back on hiring, manufacturers are getting fewer orders, the housing market is shrinking, and the GDP has decreased. These are just a handful of the plethora of evidence that says we are now in the 13e recession of the last three quarters of a century.

To deny this reality is to deny the truth. But just as the truth has consequences, including political ones, denying the truth can have the appearance of avoiding, or at least delaying, these consequences. There is obviously a strong political incentive for all Biden loyalists at the NBER to avoid confirming this recession until the midterm elections are over.

To do so would not only ignore the facts, but also be unethical. This is reminiscent of the old adage: Justice delayed is justice denied.

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