Are we in a recession?

(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: lawrence@krubner.com

When I was young, one thing that surprised me was the debate that occurred around the possibility of a recession in the early 90s. For me, personally, the economy sucked, and I thought we were in a deep recession. Then I started seeing magazine articles wrestle with the question, could we be entering a recession? Years later, NBER declared the recession had started in July of 1990, so the whole time people were debating the possibility of a recession, we had, in fact, been in recession.

And the same thing happened in 2001.

And the same thing happened in 2007.

For whatever reason, by the time respectable economists being to consider the possibility that we might be in recession, it later turns out we were already in recession. So it is interesting that some economists are now beginning to consider the question again.

Labor force participation is down once again, and we cannot dismiss the notion that a new recession may be starting. That said, at current margins I am not sure the traditional distinction between cyclical and structural factors still makes sense, so that word “recession” may be more misleading than illuminating.

Paul Krugman is (correctly) morphing back into more of a supply-side interpretation of secular stagnation: “Second, secular stagnation — persistent difficulties in achieving full employment — is a real concern if potential growth is slowing due to a combination of demography and weak technological progress, which seems to be happening. Lower growth means lower investment demand, so getting the private sector to spend enough gets harder.”

There is more and more evidence that we’ve shifted into a new regime where wage growth for most income classes simply doesn’t happen to any significant degree. This may not last forever, but it remains the status quo and too many people find it too hard to wrap their heads around that. That to me is the single biggest takeaway.

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