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interestrateripoff

How Should A Recession Really Be Defined?

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So it appears we can all clap that the end of the technical recession is looming, it appears that we will get minuscule growth allowing our political elite to claim the recession is over.

http://www.telegraph.co.uk/finance/finance...n-envelope.html

He said: "Art had the neat idea that if we had a definition of recession which meant that people could say we are not actually in a recession, not technically, that would get the president out of a difficulty.

"So on the back of an envelope he invented the idea that in order to call it a recession you had to have had two consecutive quarters of negative growth."

So this is why we have the current definition.

Now lets have a look at Bernankes recent comments:

http://www.businessweek.com/executivesumma...nke_us_une.html

The U.S. jobless rate will stay high even when the country’s economy recovers from recession some time in the next few months, according to Federal Reserve Chairman Ben Bernanke. Speaking at a town hall meeting on July 26, Bernanke also said it would take GDP growth of around 2.5% to keep the jobless rate constant. The Fed’s current outlook don’t foresee growth to reach that level at any time during 2009.

From the prole point of view then even 0.5% growth does not mean the end of the recession, for the job losses to stop in the US they need 2.5% growth, so to start creating jobs the US needs >2.5% growth. Has anyone got any stats on how many jobs are created for each 0.1% of growth. So for the US to get back to pre crash levels of employment is going to take colossal growth, and hasn't it been reported so far 10 decades of job growth have more or less been wiped out?

I would argue that simply defining a recession of two consecutive quarters of negative growth is very misleading although politically expedient as the vast majority of people won't realise that just for the economy to stand still requires large economic growth.

If you asked most people if 1% growth would create jobs most would answer yes. Until I started reading more on this subject I'll be honest I would have assumed that positive growth would mean more jobs and a stable economy. Clearly this is not the case. Although continual growth then hits the problem eventually of perpetual growth, but that's another point.

Surely what defines a recession should be altered and economists should have the guts to tell people that small economic growth does not mean the end to the recession.

Below trend growth surely means increased deficit spending from govts unless they are prepared to slash budgets.

So what should define a recession.

Edited by interestrateripoff

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New economic terms do need to enter the parlance: Anemic or disatisfactory growth is needed as a new term as much as excessive or dangerous growth and they need to be applied to more than just one aspect of the economy.

Its dangerous growth in the property market that's gotten us into this mess.

Edited by Dave Spart

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We've had the credit crunch, 'The Downturn', now the recession.

I don't care what GDP is doing, if unemployment is rising then we are in a recession. And if it stays high then we are still in a recession.

I'm not sure of the exact figures but I expect negative growth only lasted a year or so in the 1980's but times (and unemployment) were very tough for years after. I think we saw positive growth in 1981 but unemployment kept rising and peaked in 1984, and only started falling in 1986/7.

Anyone who thinks that if we see growth in GDP in the next set of figures and that this will kickstart the housing market are sadly mistaken. The housing market will be dragged down for at least the next two years with rising/high unemployment.

Edited by Jim B.

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So what should define a recession.

I think that there is no problem with the definition of a recession - something that is receding (i.e. in recession) must be falling, so the word makes no sense if used to describe 1%pa growth.

More important is the wider population understanding more of the truth behind the current situation, rather than just a mantra of "recession = bad, house prices rising = good"

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So it appears we can all clap that the end of the technical recession is looming, it appears that we will get minuscule growth allowing our political elite to claim the recession is over.

So what should define a recession.

If GDP was a true measure of the economic climate then it would be a decent starting point for a definition of recession wouldn't it? But as far as I can see - especially this time round - GDP appears to be a figure that can be manipulated for political and corporate gain. So it becomes another useless indicator.

I would suggest jobless figures might be a useful indicator but again these figures are continually manipulated for political gain (incapacity benefit anyone?)

And I might suggest that the actual way businesses reported their accounts should be closer to the truth

And I might also suggest that it be useful to see what the GDP figures are when you strip out public spending so we can see what is happening in the ‘real’ world.

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And anyway, jobless figures have nothing to do with GDP.

In 1945 we had full employment. Now we have something like 6m unemployed (depending on how you count). That number has increased fairly constantly over the last 65 years. The trend line has clearly been for rapidly increasing unemployment over this period.

Are you seriously arguing that the country has been recessing over this period? Technological advances improve standard of living and reduce unemployment.

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And anyway, jobless figures have nothing to do with GDP.

In 1945 we had full employment. Now we have something like 6m unemployed (depending on how you count). That number has increased fairly constantly over the last 65 years. The trend line has clearly been for rapidly increasing unemployment over this period.

Are you seriously arguing that the country has been recessing over this period? Technological advances improve standard of living and reduce unemployment.

Yes but the demographics of the working population has altered. Just after the war married women tended not to work so where not counted. Over time that has changed where women now work through out their lives with child bearing breaks. Just after the war once you'd reproduced the woman's place was at home looking after the family.

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