THIS “RECESSION” MAY BE SOMETHING OTHER THAN A RECESSION
The official definition of a “Recession” is that it is two quarters in a row of negative growth. By virtue of that definition, we are not currently in a “Recession” albeit there are many who would argue that we are about to enter one.
I think the debate of whether we are or are not either in or about to enter a “Recession” is a very misguided discussion. Here’s why:
Let’s start with an over-simplified example to make a point: Alzheimer’s Disease used to be known as “senility.” It became redefined as Alzheimer’s when the illness could be more accurately described. When that happened, the treatment also changed. The point of this example: When there is a change in the way something is defined there is also a related change in the appropriate response to it. If a patient with Alzheimer’s was labeled as “senile,” not only would the patient’s characterization be wrong, but the likely treatment of the problem would be wrong.
That’s what concerns me about whether the current economic situation is called a “Recession” or not. I think that if we try to define the current (and likely emerging) economic situation by virtue of whether the exact economic statistics have been achieved is comparable to defining Alzheimer’s as senility.
I’m far from an economist, but I think of recessions as topical events that occur in irregular cycles, often as corrections from periods of over-exuberance. The symptoms of one recession versus another are also very similar: people lose their jobs, spending and investment goes down, valuations go down, mistakes are washed through the system, etc. There are variations on the theme, often colored by the fact that a select number of industries (such as home-building or financial services or autos) are particularly hard hit and whether other trends (inflation, for example) are associated with the recession. But that is it in broad terms. We know what a “Recession” is and we know (more or less) how to treat it and what to look for to determine how and when the treatment is working. Exactly the way we knew how to identify and treat senility, until it was redefined.
I think that although we may well experience the two sequential down quarters of growth that would put us officially into a “Recession,” it will mask the reality that we are in (not “entering”) something different.
The commodity of oil is hitting extremely high prices as there is a dramatic surge in demand from developing nations, especially China and India, and that is leading to the formation of new international political alliances. Food shortages and the associated increase in the price of food are global problems. New economic centers of gravity are rising (Dubai) as well as new currencies (the Euro) while the US dollar has lost buying power (and respect). Jobs move not simply from a union market to a non-union market, but from one nation to another. Quickly. The gap between rich and poor is widening. Information is an industry and it operates non-stop real time globally. There really is a global economy so that econmic conditions are also global. Want to build a business? Leverage your brain instead of capital-intensive property, plant and equipment (soft vs. hard assets). The list goes on. It isn’t hard to observe all sorts of fundamental changes that I think point to a conclusion that the Knowledge Economy is real and growing and fundamentally different than the Hard Asset Economy from which we are moving.
Consider this recent item from the Bureau of Labor Statistics: ”The number of manufacturing jobs in NYC, which once exceeded 850,000, fell below 100,000 in recent months… Manufacturing now accounts for about one of every 40 jobs in the city, down from almost a quarter of all jobs in the mid-1960s.
If we are indeed shifting from a Manufacturing to a Knowledge economy, wouldn’t it be fair to say that the characteristics of one (such as an economic downturn defined as a “recession”) would not be characteristics of the other? Didn’t the characteristics of agrarian economies largely become irrelevant to enterprises involved in manufacturing?
If we begin to think about the current economic (and social/cultural/political) realities as early examples of conditions of the new global Knowledge Economy, we have a chance of developing ways to coping with them and maybe even remedying them. But if we continue to think of these new realities in terms of parochial Manufacturing Economies, we are in for a long, difficult road.