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The Definition Of A Recession - What Was The Definition Before Lbj?

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It was "entirely spin", according to Peter Jay, who was in the room at the time when the definition was created "on the back of an envelope".

This was completely arbitrary. It was just a neat device by a clever economist trying to help his chief who was faced with a political challenge. It is entirely spin, entirely semantics. The whole argument about "Are we or are we not in recession?" is completely barmy. The rest of the world, as in so many things – often for good reasons – followed the United States.


Peter Jay, who was Britain's envoy to Washington between 1977 and 1979, said that the definition - two consecutive quarters of negative growth - had no basis in economic theory and was created by the US Government in 1967 to aid the re-election prospects of President Lyndon Johnson.

Mr Jay, who said he was "in the room" when the definition was established, said that Art Okun, the chairman of Johnson's economic council, acted upon "indications that there might be a recession that year", which he feared would dent the President's popularity.

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."

Mr Jay, who went on to become the BBC's economics editor, said: "This was completely arbitrary - there was absolutely nothing scientific or in the economic theory that requires that a recession be defined in that way. It was just a neat device by a clever economist trying to help his chief who was faced with a political challenge.

How did they use to define a recession before this defining moment? Has anyone got any other suggestions about how we got to this definition or is Jay telling the truth about how economists all now happily define a recession?

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What does does your dictionary say? Probably something about a period during which the economic output of a country contracts.

Fixed definitions are not helpful. They get gamed and abused. Rather like the definition of poverty, which is purely a construct of the left to require wealth redistribution.

We have been in recession for about five years and are only just about to leave it.

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  • 407 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
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      • Even
      • up 2.5%
      • up 5%

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