True. But simplicity and a consistent definition means that the declaration of a recession is 100% objective and free from analysis or interpretation
I prefer fewer metrics so that everyone knows when we’re in a recession rather than to commit the appeal to authority fallacy by relying on experts to crunch the data and tell us that we’re in or not in a recession
We humans are wired to seek quick simple solutions, it’s in our DNA. We all want to find the simplest, most effective and intellectually cheapest answer to any problem that we face. We all want easy answers.
It’s a remnant of our very early days in the human evolutionary process. It’s one of the reasons that we fragile naked apes came to prosper and dominate other competitors occupying our narrow little biological niche on earth. We observed a threat or opportunity, made a quick decision, and took action that our competitors failed to do. So we beat most of them in the struggle to come out on top.
But in the complex world that we have since created, many things we encounter on a daily basis are not as simple as they might appear. The question of whether or not our country is in a recession is a reasonable example of that fact. In short, it’s too early to tell if we are in a recession.
The initial numbers you see published after a quarter ends is an estimate of production, is is not a measurement of it. and as we all know, estimates are often wrong.
Next year we’ll know if we are now in a recession.
The key is to have quantitative measures that are consistent over time and don’t get tweaked by the party in power (i.e unemployment rate). Its not really that meaningful to establish that you were in a recession 6 months ago…
OK… no more evolutionary theory… here are some facts:
We make decisions using two very distinctly different systems. If a deer runs out in front of a car you are driving, you make a decision to hit the brakes. That system requires no thought before you do that, it’s instinctive. If you see a question you wish to solve, you search your memory for an answer to that question. Our brains instinctively try to conserve energy. Our cognitive thought process requires more energy than our instinctive process and tends to make us want to use easy available answers. We have lazy brains. That’s why we don’t bother to look up the details of a reasonable-looking ready-made solution like the handy, available and “official” BEA quarterly GDP reports. It’s too much mental work.
The fact is, when it comes to a timely accurate quantitative measure of GDP, we do not have one. All the rationale and wishing or believing that we do have one will not change that fact.
As mentioned earlier, the NBER is the accepted official decider of a US recession.
Here is how GDP is reported by the Bureau of Economic Analysis:
" The advance estimate , coming about a month after the quarter’s end, is an early look based on the best information available at that time. The second estimate and third estimate each incorporate additional source data that weren’t available the month before, improving accuracy."
Yes and there’s the efficiency vs effectiveness. Effectiveness is accuracy of the information while efficiency is the timeliness of that information
A recession should be a period of economic decline for 6-18 months by an accepted metric(s). I like GDP or GNP but other metrics like unemployment can provide useful information. The NBER should be able to forecast a recession and state why we’re not in a recession when GDP or GNP is negative or why we are in a recession when GDP or GNP is positive