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Amity Shlaes Does Not Know What a Recession Is

Posted By Barry Ritholtz On July 12, 2008 @ 5:30 pm In Economy,Financial Press,Politics | Comments Disabled

According to Amity Shlaes, Phil Gramm is correct — there is no recession so just stop whining:

"Consider what happened this week. While speaking with the Washington Times, Gramm said that the country was not in a true recession but a "mental recession." He also said, "We have sort of become a nation of whiners" and "You just hear this constant whining, complaining about a loss of competitiveness, America in decline."

Gramm was right about the recession and stood by his recession comments on Thursday. A recession is two consecutive quarters in which the economy shrinks, and last quarter it grew. But no matter. Voters feel they are in a recession, and so they are, at least according to Campaign Econ."

Um, wrong.

First, let’s corrrctly define what a recession is: It is NOT two consecutive quarters of GDP contraction. What a recession actually is, according to the NEBR, the entity in charge of dating such things, is as follows: 

"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.

A recession begins just after the economy
reaches a peak of activity and ends as the economy reaches its trough.
Between trough and peak, the economy is in an expansion. Expansion is
the normal state of the economy; most recessions are brief and they
have been rare in recent decades. As formally defined by the NBER, it is the "Peak to Trough decrease in business activity." 
-The NBER’s Recession Dating Procedure [1] 

You will note that nowhere in that formal definition is there any discussion of consecutive quarters of negative GDP.

Let’s review: Phil Gramm is working hard at submarining John McCain’s Presidential campaign. Gramm says something that will very likely found to be incorrect — we won’t find out for quite sometime when the recession technically began, but its a good bet that its somewhere in the October 07 – February 08 period, based upon the definition above.

At the very least, what Gramm said was foolishly impolitic. Defending it via bad info is not only wrong, it is insulting to all those "whiners" dealing with food and energy inflation and asset deflation. Ms. Shlaes response is to defend Gramm via definition discarded long ago. (Well, its not like she’s an expert in economics or anything).

I guess she and Phil Gramm are two more Pervasive Pollyannas of Prosperity [2] . . .

Smart move by Phil Gram:

While people are looking at this dumb comment — as well as his great work at UBS [3] — the real fun won’t begin until they start investigating his work on the 2000 Commodities Futures Modernization Act . . .

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Previously:
Recessions Often Begin With Positive GDP Data [4]   (May 2008)
http://bigpicture.typepad.com/comments/2008/05/positive-gdp-re.html

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Sources:
Phil Gramm Is Right [5]
Amity Shlaes
Washington Post, Saturday, July 12, 2008; A13
http://www.washingtonpost.com/wp-dyn/content/article/2008/07/11/AR2008071102543.html?hpid=opinionsbox1

The NBER’s Recession Dating Procedure [6]
October 21, 2003
http://www.nber.org/cycles/recessions.html

Business Cycle Expansions and Contractions [7] 
National Bureau of Economic Research
http://www.nber.org/cycles.html

Bureau of Economic Analysis [8]
GDP
http://www.bea.gov/national/index.htm#gdp

Forgotten Man: A New History of the Great Depression [9] (Hardcover)
by Amity Shlaes
http://www.amazon.com/exec/obidos/ASIN/0066211700/thebigpictu09-20


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2008/07/amity-shlaes-does-not-know-what-a-recession-is/

URLs in this post:

[1] The NBER’s Recession Dating Procedure: http://www.nber.org/cycles/recessions.html

[2] Pervasive Pollyannas of Prosperity: http://bigpicture.typepad.com/comments/2008/07/more-on-the-pub.html

[3] great work at UBS: http://www.slate.com/id/2194933/

[4] Recessions Often Begin With Positive GDP Data: http://bigpicture.typepad.com/comments/2008/05/positive-gdp-re.html

[5] Phil Gramm Is Right: http://www.washingtonpost.com/wp-dyn/content/article/2008/07/11/AR2008071102543.html?hpid=opinionsbox1

[6] The NBER’s Recession Dating Procedure : http://www.nber.org/cycles/recessions.html

[7] Business Cycle Expansions and Contractions: http://www.nber.org/cycles.html

[8] Bureau of Economic Analysis: http://www.bea.gov/national/index.htm#gdp

[9] Forgotten Man: A New History of the Great Depression: http://www.ritholtz.com/blog http://www.amazon.com/exec/obidos/ASIN/0066211700/thebigpictu09-20

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