Friday, May 9, 2008

When Hillary Clinton was unable to name a single economist who supported her and John McCain’s proposal for a federal gas-tax holiday this summer, the print and television press, including this page, had a field day guffawing at their ignorance of supply, demand and tax incidence — topics that are routinely explored in Econ 101.

Speaking of Econ 101, we wish we had 18.4 cents (the amount of the federal gas tax) for every time we have heard a journalist authoritatively assert, “The textbook definition of a recession is two consecutive quarters of declining real (i.e., inflation-adjusted) GDP,” or gross domestic product. On April 30, the day the Commerce Department reported that real GDP had increased at an annual rate of 0.6 percent in the first quarter, the “Fox All-Stars” addressed the topic on “Special Report with Brit Hume.”

Citing the latest polling data, Mr. Hume observed that 54 percent of respondents said the economy was in a recession, 38 percent said it was “a mere downturn” and 16 percent said “it’s doing OK.” (Since that adds up to 108, can we infer that arithmetic, to say nothing of Econ 101, wasn’t Mr. Hume’s best subject?)

During the first quarter of this year, Mr. Hume noted, “GDP grew at 0.6 percent. That’s not much, but it’s not a recession.” Bill Sammon of the Washington Examiner confirmed Mr. Hume’s conclusion. “You cannot call it a recession yet because that would make [the economy] a much more potent political issue,” Mr. Sammon said. He added, “A recession has [a] definition. It’s generally agreed to be two quarters of consecutive GDP decline. So we haven’t even had one quarter of GDP decline, much less two.” Fred Barnes of the Weekly Standard, a frequent “Fox All-Star” who was absent that day, spent the rest of the week telling Fox viewers that a recession was two consecutive quarters of declining GDP.

In fact, the definition of a recession that seems to be universally embraced on Fox is wrong. The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) is the official arbiter of when recessions begin and end. Interestingly, quarterly GDP data are not even included among the four (monthly) data series that the committee examines before making its decisions. Officially, the NBER committee defines a recession, which it calibrates by month (and not by quarter), as “a significant decline in activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income and wholesale-retail trade.”

This is not a nuanced academic debate. The difference between the incorrect definition of a recession embraced by Fox and NBER’s definition has not just economic consequences but huge political ramifications as well — which the “Fox All-Stars” can immediately appreciate. As countless “Fox All-Stars” (and this page) have infinitely observed, the Bush-Cheney administration inherited a recession bequeathed by the Clinton-Gore regime. According to NBER, that recession officially began in March 2001 and ended the following November. But GDP did not decline for two consecutive quarters in 2001.

So, according to the current Fox definition, there was no recession in 2001. If there wasn’t a recession in 2001, then it would be tough to partly blame the previous administration for converting a $236 billion budget surplus in fiscal 2000 into a $413 billion deficit four years later (or for replacing a $114 billion reduction in the national debt in 2000 with a $3.7 trillion increase since then). If there was no recession in 2001, then it is difficult to partially blame the Clinton-Gore regime for the fact that real median family income in 2006 (the latest year available) was less than it was in 2000. This might explain why so many people believe there is a recession today.

The NBER has not decided whether a recession has begun. But if it has begun, which is our belief and fear, it will probably have been the first post-World War II recession (except for the 1981-82 recession that piggybacked on the 1980 recession) to have commenced when real median family income was lower than it was at the beginning of the previous (2001) recession.

Copyright © 2023 The Washington Times, LLC. Click here for reprint permission.

Please read our comment policy before commenting.

Click to Read More and View Comments

Click to Hide