recession: noun, An extended decline in general business activity, typically two consecutive quarters of falling real gross national product.
Unless Mr. Feldstein has information never made public we have not had two consecutive quarters of decline and are not in a recession. Further, with as absolute and as simple a definition as that, it is foolish of him to suggest a recession would not be identified until much later. GNP numbers are usually available within days of the end of the quarter. There would be no need to wait any longer than 4/15, 7/15, 10/15 or 1/15 to know and announce a recession and you can be positive the party out of power would not wait to announce it.
Talking about the difference between the NBER's definition of recession, the dictionary's -- and the respect that should or should not be given to each -- is like talking about the weather and debating about a day being partly cloudy or partly sunny.
As a practical matter, it does not matter what definition we use. It matters how business is for us on the ground.
People who use the "two consecutive quarters" definition certainly have a defensible basis for doing so. I only ask readers to understand that I favor and use the NBER definition. Interested readers can learn more about
how recessions are officially dated at the NBER web site.
I also hope readers note how I try to avoid discussions about the politics of the economy. When I view the economy, I assign very little weight to government actions. That is because I believe economic forces are more powerful than the President, Congress, the Federal Reserve Bank, and all of them combined.
The federal government can take certain actions that have certain effects, and will often do so for political reasons. But that affects the larger forces no more than putting up a dike affects the water.
You might be able to change the water's path for a time, but not without causing other things to happen across the bank, upstream or downstream. And even with your best efforts and intentions, the dike may still give way.
For example, not long ago, the Federal Reserve Bank stepped in to keep Bear Stearns from collapsing and thereby prevent a market meltdown. A dike was built, and indeed, a market meltdown was averted. But the water continued to flow.
In July, the U.S. Treasury Department, in an effort to calm market nerves, promised to stand behind Freddie Mac and Fannie Mae. A dike was built, but the water continued to flow.
This weekend, political people decided another dike needed to be built to sieze Freddie Mac and Fannie Mae to avert a market meltdown. But the water continues to flow, as it always does.
As expediters, we will not succeed by rooting for or against one dike or another because we support or oppose the political people who can build or remove a dike. We will succeed by thinking clearly about the water, and making wise decisions relative to its flow.
