A commenter on a recent blog post says “Philip, I know you don’t believe there’s a recession” (based on the fact that the NBER declared the U.S. economy to have come out of the most recent recession in the summer of 2009). It occurred to me that maybe asking whether or not the U.S. economy is in a recession is the wrong question. Now that the world economy is so tightly linked, what does it mean for a single country to be in a “recession”? A recession implies that there is a business cycle within each country that inevitably expands and contracts. Thus if a country is “in recession”, without any changes in laws, education, tax rates, or attitudes, it will inevitably enjoy strong growth when the recession is over.
The world economy has never been in better shape than right now. You might not get that perspective from news articles, but of course they tend to focus on problem spots such as Greece, Ireland, the U.S., etc. There has been a huge amount of growth in the world economy since 2007 (chart). If a country, such as the U.S., has a smaller economy than it did in 2007, does it make sense to say that country is “in a recession” or simply that whatever conditions are necessary for growth in the current world economy are not present in that country? Does it make sense to predict that next year will be different from this year in terms of a business’s willingness to invest in the U.S.?
The existence of growth generates inequality. In a subsistence economy, most people have about the same standard of living. Growth, however, will affect different people to different extents and lead to an inequality of income and wealth. Rather than talk about recession or expansion of a particular economy, would it not make more sense to say that different regions of the world will enjoy a larger or smaller share of the world’s economy growth? Even within the U.S., the expansion periods have not been experienced equally in all regions and industries. Michigan stagnated while North Carolina grew. Investment banks grew fat while other kinds of companies at best stayed even. The U.S. recession is over and yet there are a lot of unemployed Americans. Maybe the answer is that it simply is not productive to consider the concept of a national “recession” at a time when the world economy is exploding with growth.