“The government is cooking the books.”
These are among comments heard from business leaders and economic observers when last week’s report on the gross national product “failed” to signal a recession.
When the U.S. Department of Commerce pegged GNP growth at 1.8% for the third quarter, you might have thought analysts and commentators would breathe a sign of relief.
But it didn’t happen.
“It can’t be right,” said one observer. “Respected economists know we are in a recession.”
Too many “respected economists” – people like Michael Evans and Alan Sinai – have been predicting recessions for years. When recessions didn’t happen, “respected economists” started the mumbo jumbo about “hard” and “soft” landings. When they couldn’t find the airport, the recessionists went into hiding until the Mideast blew up.
But what difference does it make, for policy and for action, whether we are in a recession? Certainly there is pain in lost jobs and failed companies. But that comes with a simple economic slowdown. In the meantime, because of recessionist talk, important long term issues, like improved education and competitiveness, are ignored.
We are in a slowdown. That’s for sure. And the slowdown is greater in some regions (New England) than in others (the West).
In fact, many economists – even some “respected economists” – feel we are in an era of “rolling recessions,” slowdowns that will roll from sector to sector or region to region. Rolling recessions, unless they get out of hand, may replace economy-wide recessions.
Maybe economists ought to re-examine their models and methods. Forecasting models, invented and refined in the stable 1950s, don’t work as well in the turbulent 1990s.
Because so much of the economy – nearly 80% – is based on consumer spending and thus on consumer confidence, it is possible for economists and the media to talk us into a recession. Consumer confidence has plunged since the Aug. 2 blowup in the Mideast followed by rising gas prices and the Congressional budget fiasco.
Yes, part of the blame goes to the media. The media can’t tell us what to think, but the media are very powerful influencing what we think about.
In September, when the recessionists were being quoted heavily in the media, the respected Conference Board survey of more than 200 business economists showed that only about a third of them thought we were in a recession. The other two-thirds did not. You sure don’t get that idea from reading newspapers or watching network news.
Today we have a new economy. Demographic discontinuities such as the baby bust, barter and trade in services and the globalization of capital markets have combined to undermine our ability to forecast economic performance. As a result, the role of rumors rises as confidence in the economy diminishes. That’s not a healthy situation.