Here's the Biden administration's modus operandi when confronted with a problem or bad news - denial. It believes in chorusing, believing that the more something is repeated, the more it becomes true. A popular technique is to assemble teams of "experts" to push its claims. Most often, it is likely to underestimate the intelligence of the rest of the world and speak down to them.
Anticipating a terrible GDP report on Thursday, Team Biden proactively began damage control over the past weekend. This time it was a semantic battle. What is a recession?
The economy contracted 1.6% in Q1, and the GDP data on Thursday came in at a 0.9% contraction in Q2.
The widely accepted thumb rule is that two straight quarters of contraction equals a recession. According to Paul Samuelson and William Nordhaus' famous macroeconomic textbook, economists have long defined a recession as "a period in which real GDP declines for at least two consecutive quarters."
The business cycle dating committee of the National Bureau of Economic Research (NBER) is the arbiter of recessions. The committee's eight economists weigh the depth of the contraction, its duration, and whether economic activity declined broadly across the economy (the diffusion of the downturn). The NBER's recognition of recessions is typically delayed.
For example, NBER identified the recession that began in December 2007 and ended in June 2009 only on December 1, 2008, one year after the start of the recession. Similarly, the dating committee announced the beginning of the March 2001-November 2001 recession only on November 1, 2001, when the recession was almost over.
TIPP accurately spotted the start and end of these two recessions using the IBD/TIPP Economic optimism index. Generally, a sharp decline or rise of the Economic Outlook component signals the start or end of recessions.
The administration knows that the NBER announcement will take significant time. Worried about the midterms in November, it wants to engage in classic diversionary tactics and sell Americans to ignore the news that the economy has contracted for two consecutive quarters. To do so, it relies on low unemployment numbers. Nearly three million Americans have left the labor force since the onset of the pandemic shrinking the labor force, one reason for low unemployment.
The IBD/TIPP Poll tracks the share of American households each month with at least one person looking for employment. That number was roughly 12% before the pandemic and is still 41%. If the job situation is excellent, the share of job seeker households should have returned to pre-pandemic levels, which it has not.
Americans Lack Confidence In Experts
Experts have repeatedly let Americans down, whether in matters of health, economy, intelligence, or justice.
For all of 2021, Biden's economic team was preaching that the U.S. was in a "transitory inflation." Finally, in November 2021, Fed Chairman Jerome Powel decided to retire the term. More recently, Janet Yellen admitted that they made a mistake. The inflation cover-up did not inspire confidence in Americans.
Other so-called experts were remarkably off. In a stunning move, 17 Nobel prize winners last September wrote an "open letter" endorsing the ill-advised Biden Build Back Better (BBB) to spend nearly $6 trillion. The list included prominent names such as Robert Shiller at Yale, Joseph Stiglitz at Columbia, William Sharpe at Stanford, and Daniel McFadden at Berkley. "Because this agenda invests in long-term economic capacity and will enhance the ability of more Americans to participate productively in the economy, it will ease longer-term inflationary pressures," said the letter. The bold endorsement raised eyebrows. Even backbenchers in Macroeconomics 101 could see that inflation was rising, and there was no easy way to put the genie back in the bottle. Thank God the bill did not pass! We shudder to imagine where inflation would be today had it gone through.
The skepticism extends to Biden's team of advisers.
Brian Deese, Biden's Director of the National Economic Council in 2008, said, "Economists have a technical definition of recession, which is two consecutive quarters of negative growth." But Deese now sings a different tune in 2022. This week Deese says, "Two negative quarters of GDP growth is not the technical definition of recession."
A recent TIPP Poll showed that only 31% of Americans give an "A" or "B" to Biden's economic team. Messaging becomes harder when consumers lack confidence.
Americans Think We Are In A Recession
The latest IBD/TIPP Poll data showed that 58% of Americans believe we are in a recession. The share of those who think the economy is in a downturn crossed 50% in June. It had been hovering below the 50% level since January 2021.
Over a third (68%) think the economy is not improving. It was 58% in May, jumped to 67% in June, and remained steady in July.
The chart below summarizes Americans' perception of the economy over time. Notice that the share of Americans who think we are in a recession has climbed for five consecutive months since February 2022. Also, since the beginning of this year, the percentage who think the economy is improving has steadily fallen below 30%.
Aside from Biden's attempt to redefine the idea of a recession, it is indisputable that the economy is slowing down. A slowdown accompanied by inflation is called stagflation.
We at TIPP understood weeks ago that we were in a recession. There are other indications also. Signifying consumer pullback, Walmart and Target announced efforts to eliminate stagnating inventory. Repossessions of autos are exploding. Tech companies are pulling back on hiring. The housing market has deteriorated significantly. The Fed's medicine to tame inflation is showing signs of working.
Team Biden is ganging up with its media friends and working overtime to browbeat Americans. The economy has its own mind, and it is too big compared to a handful of individuals and their prevarications. What matters most is what Americans think. And they think we are in a recession. Period.
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