According to US Treasury chief Janet Yellen, the current US economic status needs to be reassessed by experts as it would not be fair to classify it as a “recession”. Writes Lucas Leiroz
The financial crisis in the US seems increasingly difficult to hide. The reality worries the Biden government, whose unpopularity creates a serious risk in the midst of this unstable scenario. In this sense, in order to avoid an unprecedented crisis of legitimacy, Washington’s officials seem to be betting on the redefinition of elementary concepts of the economic sciences as a way of masking the country’s social chaos.
According to US Treasury chief Janet Yellen, the current US economic status needs to be reassessed by experts as it would not be fair to classify it as a “recession”. Yellen said she considers the classical concept of recession “not technical”. Despite the decreasing numbers, Yellen thinks it is necessary to assess factors other than the national GDP in order to classify the situation more “appropriately”.
“That’s not the technical definition [of recession] (…) There is an organization called the National Bureau of Economic Research that looks at a broad range of data in deciding whether or not there is a recession. And most of the data that they look at right now continues to be strong. I would be amazed if they would declare this period to be a recession, even if it happens to have two-quarters of negative growth. We have a very strong labor market. when you are creating almost 400,000 jobs a month, that is not a recession”, she said during a recent interview.
The most interesting point is that this speech has been not limited to Yellen’s personal words but was also the topic of an article published on the US government website. The text was titled “How Do Economists Determine Whether the Economy Is in a Recession?” and its only objective is to point out directions for a “re-signification” of the concept of recession just to say that the American economic data for 2022 does not indicate what economists would call a recession.
“What is a recession? 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. 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. (…) Recession probabilities are never zero, but trends in the data through the first half of this year used to determine a recession are not indicating a downturn”, the article states.
Experts reacted to these White House’s pronouncements by accusing the current Administration of being “propagandistic” in its economic reports. And, in fact, the case really looks like an attempt to hide the gravity of the American situation through propaganda techniques. According to the economic sciences, recession is a period of downturn in the economic activity, caused by one or more factors. Usually, the result of this economic drop is the emergence of visible material impacts for the population: decrease in GDP and HDI, decline in the population’s purchasing power, bankruptcy of companies, indebtedness, unemployment, inflation, among others. These characteristics are currently part of the American reality and there is no way this situation can be “masked”.
The US economy contracted by 1.4% in the first quarter of 2022 and 1.6% in the second, according to the Fed. GDP is the clearest and most direct indicator of the economic situation and it is the data that can define whether or not the country is – or is heading towards – a recession. However, even considering factors other than GDP, the American social reality is clearly complicated. Inflation is already at 9%, a record in more than 40 years. The purchasing power of American citizens is dropping. So even analyzing it “holistically” – as the White House proposes – it is obvious that the optimism about the economy is totally unjustified.
If Washington is experiencing a decline in GDP for two consecutive quarters of the year, then the country is definitively in recession and economic crisis. Changing the meaning of words and concepts will not imply material improvements for the American people. Call it a “recession” or something else, the result is only one: the American economy is in dangerous situation. Instead of trying to hide the truth, the Biden Administration should look for real solutions to this problem.
Lucas Leiroz, researcher in Social Sciences at the Rural Federal University of Rio de Janeiro; geopolitical consultant.
