Economists to America: “Honey, we broke the calculator!”

Once a month, the US government locks a bunch of Econ PhDs in a room to calibrate changes in employment, payroll, production and consumption. Today, the experts announced the results of their November gathering. Guess what? We’re in a recession, and we’ve been there since December 2007.

Well, duh. Americans have been feeling the hit for months.

But economists usually wait around for two consecutive quarters of negative GDP growth before calling a recession. That definition rests on the fact that production, consumption and income are interlinked: what a country makes must add up to what it buys. In theory, when GDP is rising, it should be because consumption (roughly 70% of the domestic product figure) is rising too. And when people consume more, it should be because their employers are making more and passing it on.

That means that most of the time, the line about the rich getting richer while the poor get poorer is just gas. Income disparity is growing, but that usually reflects the rich getting richer faster than the poor are emerging from poverty. Assuming that income, consumption and production all move in the same direction justifies A) the 2-quarter definition of a recession and B) the argument that getting people to make and buy more stuff must implicitly raise our standard of living.

That’s apparently no longer the case. Read the rest of this entry »