My City September 2022

MYECON

Is the Economy in a Recession? BY DR. CHRISTOPHER DOUGLAS

R eal gross domestic product (GDP), which is the in ation-adjusted nal value of all goods and services produced in the United States, declined by 0.9% in the second quarter after declining by 1.6% in the rst.Two consecutive quarters of GDP decline is the de nition of a recession found in any “introductory economics” textbook, despite the attempts by some to rede ne the term. Since the end of WorldWar II, a recession has been called by the National Bureau of Economic Research’s Business Cycle Dating Committee every time the economy has contracted for two consecutive quarters.Consistent with the traditional de nition of a recession and past practice, the economy is in a recession. Some argue that the strong July jobs report and the unemployment rate being at 3.5% means the traditional de nition of a recession no longer applies. is argument misses some key points. First, jobs reports have been strong at the onset of a recession as employment lags the broader economy. December 2007, the rst month of the Great Reces sion, saw over 100,000 new jobs created. Second, the economy only just returned to February 2020’s employment level. Had the 2020 shut downs not occurred, employment would have likely continued to grow by approximately 150,000 jobs per month leading to four million more jobs over-and-above our current level. ird, in ation-adjusted wages have fallen in 2022.Wages are up by 5% but in ation is 9%, meaning workers’ purchasing power has fallen by 4%. If the economy contracted for two consecutive quarters, lost four million jobs and saw wages fall by 4%, a recession would be undeniable. However, for all intents and purposes, this is where the economy is right now. Two common causes of recessions are sharp increases in the price of crude oil and the Federal Reserve tightening to reduce in ation. Both have

preceded nearly every post-WorldWar II recession and both have oc curred at severe levels in 2022. Interest rates have doubled and crude oil is up by nearly 50%. Both were avoidable problems and consequences of negligent economy policy during and post-pandemic. When businesses were forced to close, people’s jobs and busi nesses were destroyed. Rather than reversing course when it be came apparent that the shutdowns were not attening the curve, policymakers doubled down, extended shutdowns into 2021, and tried to back ll the loss by printing trillions of new dollars and pouring them into the economy through three rounds of COVID “stimulus” spending. It should not surprise anyone that nancing massive increases in government spending through doubling the money supply led to in ation, but apparently it surprised policy makers, Federal Reserve o cials and some academic economists. U.S. foreign policy has made no e ort at peace negotiations in Ukraine and instead have poured billions of dollars worth of weapons into the con ict, destabilizing world oil and food mar kets and risking broader geopolitical con ict. Americans have been through a lot over the last two years and deserve to be in a better place in 2022. ®

Dr. Christopher Douglas came to the University of Michigan-Flint in 2006. He earned a B.S. in Electrical Engineering and a B.S. in Economics from Michigan Technological University in 2001, and his Ph.D. in Economics from Michigan State University in 2007. As Associate Professor and Chair of the Department of

Economics, he teaches Principles of Microeconomics, Principles of Macroeco nomics, International Economics, Public Finance, and Sports Economics.

Matej Kotula / stock.adobe.com

84

MYCITYMAG.COM