How The Recession Compares To Other Downturns The board responsible for assessing economic cycles announced Monday the U.S. economy is in a recession, and has been for nearly a year. Jeff Frankel, a Harvard professor and a member of the Business Cycle Dating Committee for the National Bureau of Economic Research, offers his insight.
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How The Recession Compares To Other Downturns

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How The Recession Compares To Other Downturns

How The Recession Compares To Other Downturns

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Well, it's official. The U.S. is in a recession. Now that may not sound like news, but here's the reason why we now say it is an official fact. Yesterday, the organization that acts as official arbiter of the economy announced to great fanfare, but little surprise, that the economy is and has been in recession for nearly a year. That organization is called the NBER, or the National Bureau of Economic Research.

The group based its official proclamation on economic growth, unemployment numbers, and other factors. Jeff Frankel is a Harvard professor, and he's a member of the NBER Business Cycle Dating Committee. And he joins me now. And Mr. Frankel, it's interesting because your blog carries the following headline, "NBER Eggheads Finally Proclaim Recession." Aren't you one of those eggheads?

Professor JEFF FRANKEL (Capital Formation and Growth, Harvard University; Member, NBER Business Cycle Dating Committee): That's right. Well I try to be a little bit pre-emptive because we know very well. And this happens every time we proclaim the beginning or end of a recession. Since it's always well after the fact, most people's reaction is, what, they're only getting around to it now? These, you know, ivory tower eggheads are the last ones in the country to know, and who cares about them? So I was trying to be a little pre-emptive there.

NORRIS: So why does the NBER seem to take so long to crunch all those numbers before daring to officially utter the R-word?

Professor FRANKEL: Well, our view is that our job is not to be fast. Everyone else out there is trying to be the first one to interpret every bit of news. I'm talking about all the pundits and the forecasters and all the people who think it's good to be fast. And that's fine. They're doing their job. Our job is to be definitive. And inevitably that is long after most other people have concluded that the event has happened. Although, ironically, in an episode like this one, we get criticized from both directions.

The first is, everyone else has known this for a long time, why'd you take so long? But then equally often we get the critique, wait a minute, I thought recession was defined as two negative quarters of GDP growth. Who needs the NBER to tell us? Well, we haven't yet had two consecutive quarters of GDP growth.

NORRIS: It's curious that whether or not the country is in a recession is determined by a private group rather than some sort of government entity.

Professor FRANKEL: Well, it's not quite as unusual as you might think. There's other statistical series, important economic series that we hear reported over NPR and we listen to and pay attention to all the time, such as consumer confidence is collected by private nonprofit entities. There's two of them. And the Institute of Supply Managers, something that used to be called the Purchasers Index, that's a private organization. So, it's maybe a little bit unusual, but not completely unheard of.

NORRIS: Does the National Bureau of Economic Research take into account less tangible factors like confidence or economic worries, the psychology of the economy?

Professor FRANKEL: Well, the psychology of the economy, of course, is very important. It shows up in stock market prices and housing prices. And those are not among the official indicators we'd look at. But we do look at lots of things, and I would say that those appear on the list.

NORRIS: Interesting position for you though to show up - it's like showing up in rainstorm with an umbrella or a raincoat when everybody is already wet.

Professor FRANKEL: Well, there's the initial point. The demand for economists is countercyclical - that I get asked to go on radio and TV a lot when things are terrible. But, yeah, I mean, knowing that each time we deliberate and we spend a lot of time and carry out a decision and then when we come out with the announcement that the almost universal reaction is going to be, what? Only now?

NORRIS: So now that you officially declare that the U.S. is in a recession, can you officially make a prediction about how long it might last?

Professor FRANKEL: No. I mean, first off, officially the only thing I can say is that the recession now is in its 11th month, and that already makes it a longer recession than the preceding two recessions - the one in 2001 at the beginning of the current administration and the one in 1990 to '91. And it's already longer than the average post-war recession, so - which is 10 months. So, that's all I can say as a member of the NBER Business Cycle Dating Committee.

If you ask me what's my own opinion as an economist, I don't think this is likely to turn around, you know, next month or the month after. And I think the odds are definitely better than even that this will, before we're done, turn out to be the longest post-war recession.

NORRIS: So you say that we only call economists when times are bad. So I will make you a promise once things turn around and the economy starts heading in the other direction, we're going to hold onto your number and we promise to call.

Professor FRANKEL: OK, but you'll also - we will get a lot of derision because, again, it will be way after the fact that we make the call.

(Soundbite of laughter)

Professor FRANKEL: Last time it was almost two years after. People really thought that was funny.

NORRIS: Jeff Frankel is a Harvard professor. He's also a member of the National Bureau of Economic Research Business Cycle Dating Committee. Professor Frankel, thank you very much.

Professor FRANKEL: Thank you.

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