LITTLE ROCK, Ark. (UPI) — The declaration by the National Bureau of Economic Analysis that the U.S. recession ended in November 2001 ends debate about whether the economy was experiencing a so-called “double-dip recession.” The NBER, the official arbiter of cyclical turning points in the economy, found the 2001 recession “lasted eight months, which is slightly less” than the average 11-month duration of recessions in the postwar era.
Some partisans and analysts are unhappy with the NBER’s decision but Americans should rejoice the U.S. is home to a professional, nonpartisan research organization that analyzes the business cycle. Most nations do not have such a research group. Established in 1920, economists at the NBER, based in Cambridge, Mass., have contributed significant research to our knowledge of cyclical growth and contraction.
Consider the formal definition of recession. Many media pundits define recession as two consecutive quarters of negative Gross Domestic Product. But the NBER’s Business Cycle Dating Committee defines 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.”
Using this definition it is tough to challenge the NBER’s conclusion the recession ended 20 months ago in November 2001. GDP reached a trough in third quarter 2001, and has expanded for six consecutive quarters. Wholesale-retail sales reached a trough in September 2001, and income hit bottom in October 2001. Both have surpassed their pre-recession peaks in real terms. One might argue industrial production reached a trough in January 2002 but this is a minor point. It has expanded in 12 of 18 subsequent months.
Partisans point to a rising unemployment rate, but this is a lagging economic indicator that tends to still increase after a recession ends. They also cite job losses, but employment in the U.S. service-producing sector appears to have bottomed in December 2001, Bureau of Labor Statistics data show. The service-producing sector is responsible for more than 80 percent of U.S. nonfarm payroll employment. Job losses in the goods-producing sector, less than 20 percent, have contributed to slow overall jobs growth.
Another NBER contribution is the idea that expansion is the normal state of the U.S. economy. Perpetual bears are always proclaiming another Great Depression is just around the corner while starry-eyed bulls in the late 1990s were eager to pronounce the business cycle dead. Most recessions are brief and they have been rare in recent decades because the economy’s structure has evolved and our knowledge has grown.
Economists disagree about the cause of business cycles, an important topic for public officials tackling issues such as unemployment, inflation, spending and tax policy. NBER researchers have considered a wide range of cyclical theories over many decades.
These include the Keynesian emphasis on underconsumption and the Friedmanite monetarist theory that recessions are caused by high money supply expansion followed by sudden low growth rates. Rational expectations theory emphasized random monetary shocks as a causal factor while Hyman Minsky focused on the credit structure’s ability to cause an economic bubble.
The economic bubble that preceded the brief recession of 2001 has renewed interest in the Austrian theory developed by 1974 Nobel laureate Friedrich Hayek, which centers on the divergence between the natural and money rates of interest. Another Austrian, Joseph Schumpeter, held that technological innovation and easy credit contribute to investment booms and busts. No theory has received acceptance among all researchers.
Contrary to some partisans, recessions, like expansions, are a nonpartisan phenomenon. Recessions occurred under Democrats Woodrow Wilson, Franklin Delano Roosevelt, Harry Truman and Jimmy Carter, and Republicans Herbert Hoover, Dwight Eisenhower, Richard Nixon, Gerald Ford and both presidents Bush. They do not discriminate between political parties. Nor should we suspend our search for knowledge about why they occur.
”’Greg Kaza is executive director of the Arkansas Policy Foundation, a nonprofit, nonpartisan economic research group based in Little Rock.”’
”'”Outside View” commentaries are written for UPI by outside writers who specialize in a variety of important global issues.”’