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Why the recession debate matters

We’re in a recession now, and it’s getting worse. What’s more, we’ve been in it for nearly a year now.

So says Macalester College economist Raymond Robertson.

Robertson’s view runs counter to that of many of his peers. The National Bureau of Economic Research (NBER), seen as the official arbiter in declaring recessions, has yet to rule on whether we’re in one now. It may not deliver its opinion until 2009.

Many economists still hedge these days when asked if we’re in a recession. As a group, economic forecasters are famously reluctant to predict recessions.

This is not just an arcane debate. It matters because politicians, business leaders, the media and others constantly cite the bureau’s data to argue that the United States still hasn’t fallen into a recession. That’s happening now, as policymakers push proposals — tax rebates aimed at boosting consumer spending, for example, and bailouts for financial institutions — that are sculpted as palliatives to “keep us from falling into a recession.”

The bureau bases its conclusions largely, though not entirely, on the most widely cited measure of America’s economic prosperity: its Gross Domestic Product. Today, the U.S. Commerce Department reported that the GDP grew 2.8 percent during the second quarter ended June 30.

Jobless rate better measure than GDP?
Robertson prefers to start the analysis with the unemployment rate. The nation’s jobless rate was 4.4 percent in March of 2007. By last December, it had risen to 5.0 percent. This year, it’s marched steadily upward, to 6.1 percent in August.

The unemployment rate reflects hardships for individuals better than do numbers such as the GDP, he argues. “That’s why it’s more accurate.”

And getting worse. On Thursday, the U.S. Department of Labor reported that the four-week average for unemployment insurance claims rose to 493,000 last week. That was their highest level since shortly after the 9/11 terrorist attacks. The rise in claims suggests further increases in the unemployment rate this fall.

Robertson says the GDP numbers are frequently revised, and often distorted by one-off trends. Consider that second quarter number, which was juiced up by one-time economic stimulus payments to consumers. Earlier, the government estimated it grew 3.3 percent instead of the just-reported 2.8 percent.

Another shortcoming is the GDP’s failure to account adequately for inflation. The government makes that adjustment, meaning the number it reports represents “real GDP,” but Robertson is among many who think the adjustment understates the impact of inflation. Minneapolis money manager and securities market historian Steve Leuthold agrees, to the point where he ridicules the accuracy of government’s GDP numbers.

Are recessions all bad?
Then there’s that little matter of whether recessions are really all that bad. Robertson sides with those who say that after boom periods that saturate the economy with bad financial practices, recessions are needed to wring out the excesses.

This year’s economic stimulus package did ease recessionary conditions, Robertson concedes, but he says it was a mixed blessing because it delayed the inevitable.

“That was an excellent short-term policy and a horrible long-term policy,” he says.

The U.S. economy, heavily dependent on consumer spending, is between the proverbial rock and a hard place, Robertson argues. The less consumers spend, the more hurt the economy will feel. The more they spend, the higher consumer debt will go.

Robertson worries about the soaring levels of public and private debt in the United States. The culture of spending and debt has become ingrained in the country at the expense of savings over the past two generations, he says, and there will be no way to sustain it.

Now, many consumers are simply tapped out. He likens trying to delay a recession by government stimulus to putting off a cancer operation.

But here’s the good news from Ray Robertson, who specializes in international economics. Minnesota is still blessed with much high-value manufacturing and will benefit from the declining dollar. Rising exports will strengthen this niche, which provides thousands of good jobs, cushioning Minnesota from the recession.

Oops, there’s that word again.

As Robertson says, “We’ve just got to face it.”

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