Thursday, October 8, 2009


Recession Over Per Paul Krugman?

Let's look at the 9/30/09 Q3 BEA Data in part:

"Advance Estimate Second Estimate Third Estimate
(Percent change from preceding quarter)

Real GDP................................. -1.0 -1.0 -0.7"

The rest of the BEA URL:

Gee, if the recession is over, how come the GDP is still negatively contracting, especially after the horrifying Q1 contractions [we'd need some real big positive 2009 GDP growth, not Q2/Q3 contractions, to make up for the lost Q1 ground, IMO]?

It seems a lot you economists have a variety of 2009 "recession's over" negative GDP rationales that contradict the one's you had before...LOL

The recession is obviously alive and kicking IMO. The recession over fairy tale is clear mathematical fiction.

1 comment:

Pete Murphy said...

The problem is the definitions of recession and GDP. Since a recession ends when GDP begins to grow again, even if it's from a much-reduced level, then by that measure the recession is likely to have ended when 3rd quarter GDP is announced. Want to end a recession? Easy. Just pour buckets of money into the economy. GDP goes up. The recession ends. Everyone is happy except workers and the families who depend on their incomes which, after deducting them, leaves almost no one.

GDP is a very poor measure of the health of our economy. For example, if GDP rises 0.5% while our population rises 1%, everyone has gotten poorer, not richer. Secondly, GDP is totally dependent on how inflation is calculated. Fudge the Consumer Price Index calculation a little and, presto!, you have GDP growth. Finally, most GDP growth is due to a rise in productivity. When wages fail to keep pace with the increase in productivity - and they never do - then increasing GDP actually masks declines in real income.

There's really only one economic measurement necessary to gauge the health of the economy - unemployment. The balance between the supply and demand for labor tells you everything you need to know about the economy. And if the demand for labor is getting slack compared to the supply, the first place we should look for the culprit is our non-petroleum goods trade deficit.

Pete Murphy
Author, "Five Short Blasts"