Recession metrics

We live in a strange period when unemployment rates that are high by historical standards co-exist with pronouncements by economic bureaus that the recession has ended. This has happened before in America also. All this is explained away by the term “ jobless recovery “. It is kind of an euphemism for a recession that has not really ended.

It will be useful to have two different recession metrics. One based on GDP and the other based on jobs. For one, people get desensitized to the unemployment issue if, on TV and in newspapers, they hear or read five times that the recession has officially ended, and another five times that unemployment is high. The announcements of the official end of recession will be taken by many, if not most, to mean that job growth is round the corner. However, this is not a given. The current level of unemployment in the economy can be of concern to those who are employed due to a number of reasons. First, a high rate of unemployment can be an indicator that further economic distress is possible, or that a slide towards a double-dip recession is possible. Secondly, there may be concern that the joblessness rate can increase.

Allowing governments and public officials to announce the official end of recessions while unemployment is high means that they can drag their feet on solving the pressing issue of job creation. In a capitalistic economy like the US, job creation is not an easy thing for a government to do. However, there are certain stimulus measures that the government can take and then hope for the best.

The other danger of announcing ends to recessions when unemployment rates are very high is that political groups that are enthusiastic about drastically reducing government spending can use the official end of recession as a cover to push their agendas. Drastic reductions in government spending when unemployment rates are high can have a severe de-stimulus effect, and can potentially cause a double-dip. In other words, unless the government is close to broke, drastic reductions in government spending in the midst of high unemployment is not a good idea. That in the current scenario, the federal and several state governments do have severe fiscal problems in the midst of high unemployment is unfortunate, and is the subject of a different debate about how things came to this pass in the first place. Republicans will parrot their usual lines about “ wasteful government “, and Democrats will parrot their usual lines about how tax-cuts for the super-wealthy are not conducive to either good fiscal health or good overall economic health.

Coming back to the topic of the article, it is believed by many that announcements by economic bureaus and governments determine overall economic sentiments among the general public, stock market etc. To that extent, there is a desire to publicize the positive changes more than the negative changes. However, that line of thinking can be allowed to determine public pronouncements only so much. A recession metric based on jobs may be a good idea.