According to a flurry of headlines today, a panel of economists just announced that “the recession’s over.” Is that true? Yes. Does that mean we’re no longer in a crisis, or that steps to fix the economy aren’t as urgently needed as they were before? Absolutely not. The situation on the ground – in the lives of the millions of people who must survive in today’s economy – hasn’t changed. We still need jobs, and we still need a concerted government effort to create them. The economists weren’t declaring an end to the problem, but most Americans wouldn’t understand that from the way the story was covered.
“Recession officially ended in June 2009,” says CNN in a typical headline. The Los Angeles Times headline elaborates: “Recession was longest since the 1930s.” While most major outlets worked hard to put the story in context, the word “recession” itself confuses readers. What is a “recession”? And what does the National Bureau of Economic Research (NEBR) mean when it says that a “recession is over,” much less that one ended over a year ago?
Too many people, including some who write on economics and public policy, assume the word “recession” means “like a depression, but not as bad.” They relate “recession” to “depression” pretty much the same way Aerosmith defines “pink”: “It’s like red, but not quite.” In this vague definition, a “recession” is a period of time in which things pretty much suck, economically speaking, but aren’t as bad as they were in the 1930s. When economists say a recession’s ended, people who misinterpret the word assume they’re saying things have gotten better. But that’s not what “recession” means to economists.
The dictionary definition of the word “recession” is “the act of receding or withdrawing,” and that’s pretty close to the economic definition. Technical definitions can vary, but the NEBR’s definition – a time when “a significant decline in economic activity spreads across the economy” – is pretty much the economic standard. In other words, a recession happens when economic activity is “receding.” When it stops receding and begins to move forward again – however slowly or inadequately – the recession is over.
An analogy: When the earth stops shaking, seismologists all agree that an earthquake is over. That doesn’t change the fact that it’s left a lot of wreckage behind.
The damage caused by recessions can sometimes be repaired in large part by improved economic growth, but we’re not seeing enough growth (or the right kind) right now. The NEBR’s economists took enormous pains to address the ongoing economic wreckage in their announcement today. In making this determination, the announcement said, “the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity.” They took note of continued difficulties, especially regarding unemployment.
Despite the NEBR panel’s laudable attempt to provide the right context for its report, some people misinterpreted it anyway. Mike Thompson of the Detroit Free Press said this: “Hot off the wires: According to a transmission that planet Earth has just received from the planet where economists dwell, the recession is over! ” While Thompson’s heart is clearly in the right place – he goes on to describe the ongoing human suffering – the problem here isn’t the NEBR. It’s the public misinterpretation of the word itself, made worse by the media’s failure to provide proper definitions or context.
Matt Phillips of the Wall Street Journal went even further off the beam in an article that begins, “The high-priests of recession dating have spoken.” The article goes on:
“Really?,” the American public says. “That’s funny because we’re still pretty miserable.” “
Well, that’s neither here nor there,’ ” say the egg-heads on the NBER.
That’s just wrong. Phillips does eventually cite the committee’s caveat, but not before leaving the impression that the NEBR, rather than his own piece, is confused about what it means to be in a “recession.” The WSJ did much better in its news section, where an article was headlined “Recession Over, but Weakness Remains.” Other coverage, like Catherine Rampell’s in the New York Times and Neil Irwin’s in the Washington Post, were equally balanced. Nevertheless, the misunderstandings and misinterpretations will continue as long as coverage of items like the NEBR report don’t provide a clear, easy-to-read explanation of the word “recession.”
The confusion and misinterpretation extends to the stock market, too. If reports like these are true and the NEBR report caused stock prices to jump – even if only by 1% or so – that should put the lie to belief in ‘the wisdom of markets.’ That’s just dumb. There’s no hard information in this report that hasn’t been known for a long time. (It’s their analysis of that data that’s newsworthy.) More importantly, the report isn’t an ‘all clear’ signal. It reads more like a wakeup call about our ailing economy and the possibility of future dangers, observing that this was the longest recession since World War II and leaving the door open to the possibility of another recession.
The biggest danger posed by these misunderstandings is that they will mislead people into thinking things are getting better on their own. We’re technically in a “recovery,” but that’s like saying the flood waters are subsiding after a tidal wave. Millions of lives are still devastated, and the pace of recovery is much too weak to help them in the foreseeable future.
How bad is it out there? There are 4 million few wage earners today than there were in 2007, but more and more people are entering the workforce. Long-term unemployment is at record levels. If things don’t change, many unemployed Americans over 50 may never work again. Their passport to the American dream will have been permanently revoked.
Young people aren’t faring any better. The unemployment rate among people aged 18 to 24 was 18% in August. We’re facing the possibility of a entire generation entering the workforce without any jobs available. That’s why Derek Thompson, a fine economics writer who also belongs to the twentysomething generation, added this comment to a piece on millenials forced to live with their parents: “We want to work. We want to grow up. We want have own own jobs and apartments and weddings and baby showers. But many young people cannot do those things right now … “
Youth unemployment isn’t just demoralizing and painful while people are out of work. It can also cripple their lifetime earning ability. That’s one reason why the Secretary-General of the OECD called US youth unemployment “a tragedy within a tragedy” and said “there is danger of a frustrated generation.” (“There’s no future for you,” sang the Sex Pistols. “We’re the flowers in the dustbin.”)
Under-employment is an enormous problem, too. As Arjun Jayadev and Mike Konczal observed, underemployment is up across thirteen different employement sectors. That’s one reason why the gap in household earning between white and African American families isn’t closing, even though their average hourly wages are closer than they once were.
More economic tragedy: Nearly 44 million Americans live in poverty. With 14.3% of its citizens impoverished, the US now has the third worst poverty rate of any developed nation.
At the rate we’re currently adding jobs in the private sector (67,000 jobs last month), the economy’s not even keeping up with new entrants into the workforce (about 100,000 per month). Even if we doubled the rate of private sector job growth, it would take 20 years to get back to where we were before Wall Street crashed the economy. Sure, 67,000 new jobs each month is technically a “recovery,” but it’s dramatically lower than the employment growth we’ve seen after other recessions.
Today’s NEBR report doesn’t change the fact that massive public spending is needed if we are to fix the damage that’s been done and become the nation we want to be. That’s why 300 economists (a “small army,” as the Huffington Post put it) signed a statement warning of the “grave danger” the nation faces if it focuses on reducing the deficit beforeinvesting in job creation to get the economy moving again. It’s also why Laura Tyson, a respected economist who serves on the President’s Council of Economic Advisors, recently wrote that “our national debate about fiscal policy has become skewed, with far too much focus on the deficit and far too little on unemployment.”
More must be done to get people back to work. More must be done to rein in the runaway bankers who caused this problem. And we need to make sure people don’t confuse “an end to the recession” with “an end to the misery.”