Recession Depression

Back in June, jayman90 wrote, “So how is the US Economy really doing? I look at the Dow and see it sinking to new lows, but then I see the US Dollar hedging up nicely against foreign currencies. The GDP is still technically ‘growing’ –About 1%. But are we really in a recession? Or are we just kind of stalling out? What needs to happen for everyone to agree that this is a recession?”

Whoa, slow down buddy, dropping all that econo-techno speak. You’re going to confuse the viewers. If you didn’t know what he was talking about, we’ll get you up to speed. The “Dow” is the Dow-Jones industrial average, which is the price-adjusted index of thirty large stocks used as an indicator for trends in the overall stock market and by extension a proxy for the entire economy.

And when he says “GDP”, he means “Gross Domestic Product” for the United States, which is the total value of the goods and services produced by labor and property located in the United States. Not to be confused with “GNP”, which is the value of all goods and services produced in the economy, plus the value of the goods and services imported minus the value of all goods and services exported.

And the US dollar hedging up nice against foreign currencies is of course referring to the relative value of US currency versus foreign currency which is, by the way, traded just like stocks are.

O.K., now that we’ve got all that straight, we can move on to the questions that don’t have as easy answers. Everything he mentioned, the Dow, the GDP, and currency rates, are indicators of how the economy’s doing. There are a bunch more indicators, too, like inflation, employment, interest rates, housing starts, presidential approval…

The bottom line is, there are lots of indicators. And no one indicator paints a complete picture of where the economy really is, and how it’s really doing. But remember, this is macroeconomics, it’s like Bizzaro-World. Quantum physics is simple compared to macroeconomics. Actually, they’re both really complicated. It doesn’t really matter as much how the economy is really doing, as much as, what is it expected to do in the future. And it’s really complicated. Because it is.

Because it includes all sorts of things, like my cheapness, and the cost of your summer vacation, and your friend’s addiction to buying shoes. Who’s buying houses, who’s not, who’s buying stock, who’s not. See? It’s very complicated.

So how is the US economy really doing? Hold on. [Flushing toilet] Yep. That’s how it’s doing.

Actually, it’s really a subject of debate. All I can say for sure now, is that it’s not doing as well as it was before. Duh.

So how do you define a ‘recession’? Well, it depends on who’s defining it. Actually, there isn’t one fixed definition that everyone uses. Here’s what most economists would likely agree with: A recession being defined as two consecutive quarters of negative economic growth. In other words, a falling GDP for six months. Whereas a depression would be a decline of 10% or more. And using that definition, we haven’t had a depression since 1937. And the largest, the Great Depression, from 1929-1933, had an estimated 33% drop in GDP. I think it was 33%. *Sound of toilet flushing*. Yeah. Nearly 33%. It’s really close.

So are we really in a recession? By the definition I just mentioned, no. Because according to the US Bureau of Economic Statistics, the US GDP went up .9% in the first quarter of 2008, and 1.9% in the second quarter. But if you’re used to fast-growing economic conditions, a significant slowdown feels a lot like a recession.

So you’re driving along at 80 miles per hour and you hit a traffic jam and have to slow down to 45. It’s a lot like that. I just can’t buy all the shoes I want! Ho. That’s a real problem, isn’t it?

What needs to happen for everyone to agree that it’s a recession? Well someone needs to force economists and media to accept their definition of what a recession is. But don’t forget that we’re still in macroeconomic Bizzaro-World, and that the definition will most likely be based on a mathematical regression that includes lots of different variables, not just GDP. X+Y-ZxM/Q makes a funny line that says… hold on! [Toilet flushes] That’s what it says!

Until then, you’ll just get lots of opinions. Like Mine.

Media people say whatever they want because there’s no real definition, so any kind of economic slowdown can be called a recession. It doesn’t even have to have a negative impact on GDP. But we know how accurate the media can be, don’t we?

Transcribed by: Erin S.

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