Recession Is Here

Recession Is Here

The Bureau of Economic Analysis has finally released its second quarter GDP economic report. The results are not pretty for the United States or the Biden administration as it certifies that the United States is in a recession. However, the administration and other politicians claim that we are not in recession because of its definition. So, what is a recession, and are we in one now?

Defining a Recession

In 1974, economist Julius Shiskin created the standardized definition of a recession. According to Shiskin, a recession occurs when two consecutive quarters of contracting output occur. This is because a healthy economy should expand, so a consistent constriction shows there is something serious underlying problems. Although this is a common standard, there is another way to define a recession. 

In 2008, CNN did a report that showed the flaws Shiskin’s definition had in regard to special circumstances such as the 2001 recession (claiming it was over-simplified). As a result, the National Bureau of Economic Research came off with another definition of recession. The NBER defines a recession as:

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

They determine a recession by three categories: Depth, Diffusion, and Duration. Many people have claimed that NBER’s definition is the official one. However, NBER’s spokesman Charles Radin made it clear that their definition does not claim to be the official definition or determinator of a recession. Furthermore, if there are positives in some areas, it will prevent it from being defined as a recession. Like creating 40,000 jobs but having no one in these positions will prevent it from being defined as a recession despite all of the other areas; proving complicated is not always better. 

Regardless of your definition, there are clear reasons behind a recession. 

Causes of a Recession

There are many ways that a recession can start. The main drivers for a recession include:

  • Sudden Economic Shock
  • Excessive Debt
  • Asset Bubbles
  • Too Much Inflation or Deflation
  • Technological Change

Instead of going through all these types, let’s focus on the ones impacting the current economy. In 2020, the COVID-19 pandemic caused a sudden economic shock around the world. This caused the United States’ second quarter to go into a nosedive. However, the economy sprung back, practically doubling the amount they lost in expansion. Yet, the effects of the Pandemic and bad policy have led to another driver: too much inflation. 

It is obvious that inflation has gotten out of control, hitting a four-decade high. Inflation constrains the market by making a paradox that cannot sustain itself. When inflation goes up, sellers and producers have to increase the prices of goods so they do not lose money. Higher prices make consumers refrain from buying products. Due to inflation, employees ask for more money to compensate for inflation. However, inflation does not change causing this to be a continuing problem till the economy breaks. 

So, Are We in A Recession? 

If you consider Shiskin's definition and the current state of inflation, we probably are. While people are eager to discard Shiskin’s definition, it is honestly the best one. Even if everything is going great, contraction shows that there is something wrong. In that regard, two consecutive quarters of economic contraction show that something is wrong. Trying to ignore one definition and choosing another does not change the reality that we are indeed in a recession. 

Don’t Say It Ain’t So Joe

Trying to avoid calling it a “recession” does not change the fact that there is one.  The Biden administration continues to address problems by deflecting instead of taking them head-on.  All the rhetoric aside, Americans are feeling the recession with this massive inflation, so no one is being fooled. To top it off, Joe Biden and Democrats are looking to spend and tax their way out of it! When has that ever worked?

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