Are We in a Recession? Depends What Side of the Culture War You’re On

Is the economy in good shape or not? About 2.7 million jobs have been created during the first two quarters of the year, but the Commerce Department reported on Thursday morning that America's gross domestic product (GDP)—which measures the sum output of the economy—has declined for two consecutive quarters. That is the popular definition of a recession, but still everyone is arguing about whether we are actually in a recession.

One reason for this is that The White House is not calling it a recession, spurring accusations among right wingers, crypto shills, and Redditors of all sorts that the definition was changed to suit the administration's election-time needs. 

Part of this traces back to a July 21 White House blog post titled "How Do Economists Determine Whether the Economy Is in a Recession?" arguing that two quarters of GDP decline does not by itself mean we're in a recession. “They can move the goal posts as many times as they want. We know the thruth [sic],” said one WallStreetBets user in a thread discussing the White House’s blog.

“While some maintain that two consecutive quarters of falling real GDP constitute a recession, that is neither the official definition nor the way economists evaluate the state of the business cycle,” the blog post reads. “Instead, both official determinations of recessions and economists’ assessment of economic activity are based on a holistic look at the data—including the labor market, consumer and business spending, industrial production, and incomes. Based on these data, it is unlikely that the decline in GDP in the first quarter of this year—even if followed by another GDP decline in the second quarter—indicates a recession.”

It's not that the Biden administration changed the official definition of a recession, so much as they're pointing to a definition provided by the official arbiter of a recession (the National Bureau of Economic Research) for what may amount to political reasons. None of this hasn’t diminished the accusations of changes afoot, and likely inflamed it. A screenshot went viral claiming Wikipedia’s page for “recession” had been edited 22 times, though a closer look shows that’s not quite true. 

This doesn’t get us any closer to actually figuring out what exactly is going on. Because the contours of this debate are so political, what we’re seeing is that other useful indicators are being overlooked in favor of strict interpretation of competing definitions. 

As Joe Weisenthal wrote in Bloomberg‘s newsletter Tuesday morning, the arguments over whether to follow a definition rooted in consecutive quarters or a definition rooted in the NBER will overlook other things.

"With every recession since the end of WWII, the US unemployment rate was either climbing prior to the declared recession, or it rose during the period where a recession was declared,” Weisenthal writes. “That's not the case in the first half of 2022. Since the beginning of the year, the unemployment rate has fallen from 3.9% to 3.6%.”

There is inarguably a downturn occurring, as we can see. Real wages are declining, supply chain shortages are still in effect, and inflation and price hikes are ongoing. Maybe it's not quite a recession by some definitions—and by others, it is—but it is something bad. The politically-motivated debates on both sides are complicated further by the fact that some indicators may be outdated, while others have been scrambled by the pandemic. Economist Paul Krugman writes in his New York Times column that “forecasters typically look at other measures that have historically been better at showing the economy’s direction. The ongoing coronavirus pandemic, however, has undermined that effort by “scrambling typical patterns in spending and investment.” 

That leaves us with enough ambiguity for all sorts of groups to seize upon to advance their politically convenient explanation for a recession, much like what happened with debates over inflation. Clearly something is happening, but what is it? Whatever we call it will determine what the policy response is: do we keep hiking interest rates, can we dole out more stimulus payments, do we try to crush market concentration, when and where does the government need to step in? These are all questions with answers that hinge on whether we have a recession or not, as well as what the sources of inflation are.