Don't know about you, but I can't take it anymore.
It's a popular parlor game these days to argue over whether we're in a recession or not. By now, everybody knows the competing claims. In this corner are the quantonomists, who say it can't be a recession because we haven't had two consecutive quarters of economic contraction. And in this corner are the populonomists, who insist that people feel pain, and that makes it a recession whether the technical metrics say so or not.
Boy, do we have a national talent for missing the point.
These are tough times for a lot of people. Home values are falling, jobs are disappearing, and $4-a-gallon gas is freaking people out. That much we know. Does it matter if this is technically a recession? To pundits it does, but in real life, other factors affect Americans a lot more than whether the U.S. economy is in recession. A few factors we seem to be overlooking:
America doesn't have one economy. Most of the stats the government puts out refer to the 50 states collectively. So we tend to discuss the U.S. economy as if it's a monolithic system that affects all of us more or less the same. But America is a vast, diverse place with hundreds of microeconomies. And just as all politics is local, all economics is local. It doesn't matter how your fellow Americans are doing 1,500 miles away. It matters whether you and your neighbors feel better off or worse off than you felt yesterday.
So if you're tied to the housing sector in Southern California or South Florida, you probably want to jump off a cliff. If you work in the auto industry in Michigan or Ohio, things seem glum. But if you work for Caterpillar in Illinois, or Exxon in Texas, or for any other company benefiting from strong exports and rising global demand for key products, you might wonder what all the fuss is about.
Overseas economies affect many Americans more than events in America. The concept of a national economy is increasingly outdated. The financial sector in New York is directly affected by the housing meltdown in many states. But it's also deeply affected by investment decisions made in Dubai and Beijing. Workers at some auto plants in the South are benefiting from the weak dollar, which makes it cheaper to build cars at nonunion U.S. factories than in Europe or Japan and has led some automakers to shift more production to America. Lots of U.S. companies have more business outside the United States than inside our borders. A U.S. slowdown surely affects the whole world, but that's offset by lots of other things going on elsewhere.
Nothing special happens the moment a recession is declared. All the hype makes it seem like the moment the pooh-bahs at the National Bureau of Economic Research declare a recession, it automatically triggers some kind of emergency action plan. But nothing actually happens—except that certain commentators go wild, shouting "I TOLD YOU SO!" Besides, the experts almost always call a recession months after the fact, because it takes that long for the data to dribble in. As an academic matter, it's very helpful to study business cycles once you actually know what happened. But it doesn't change anything today.
Recession is personal, not national. To gauge what's happening to Americans, we really want to know about economic progress. Are more Americans better off these days? Are more worse off? Which group is bigger? And where are they located? As we know, many of the trends are negative. The unemployment rate, 5.7 percent, is the highest since 2004. Millions of homeowners are losing home equity, and there could be as many as 3 million foreclosures this year. Gas and food cost a lot more. I don't know if it adds up to a national recession, but for a growing number of Americans, it's a personal recession. That's what we should be talking about.