Amity Shlaes Does Not Know What a Recession Is
According to Amity Shlaes, Phil Gramm is correct -- there is no recession so just stop whining:
"Consider what happened this week. While speaking with the Washington Times, Gramm said that the country was not in a true recession but a "mental recession." He also said, "We have sort of become a nation of whiners" and "You just hear this constant whining, complaining about a loss of competitiveness, America in decline."
Gramm was right about the recession and stood by his recession comments on Thursday. A recession is two consecutive quarters in which the economy shrinks, and last quarter it grew. But no matter. Voters feel they are in a recession, and so they are, at least according to Campaign Econ."
Um, wrong.
First, let's corrrctly define what a recession is: It is NOT two consecutive quarters of GDP contraction. What a recession actually is, according to the NEBR, the entity in charge of dating such things, is as follows:
"A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.
A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades. As formally defined by the NBER, it is the "Peak to Trough decrease in business activity." -The NBER’s Recession Dating Procedure
You will note that nowhere in that formal definition is there any discussion of consecutive quarters of negative GDP.
Let's review: Phil Gramm is working hard at submarining John McCain's Presidential campaign. Gramm says something that will very likely found to be incorrect -- we won't find out for quite sometime when the recession technically began, but its a good bet that its somewhere in the October 07 - February 08 period, based upon the definition above.
At the very least, what Gramm said was foolishly impolitic. Defending it via bad info is not only wrong, it is insulting to all those "whiners" dealing with food and energy inflation and asset deflation. Ms. Shlaes response is to defend Gramm via definition discarded long ago. (Well, its not like she's an expert in economics or anything).
I guess she and Phil Gramm are two more Pervasive Pollyannas of Prosperity . . .
Smart move by Phil Gram:
While people are looking at this dumb comment -- as well as his great work at UBS -- the real fun won't begin until they start investigating his work on the 2000 Commodities Futures Modernization Act . . .
UPDATE: July 19, 2008 7:10am
Obama has Warren Buffett and former Fed Chair Paul Volcker advising him on economic matters. McCain has had Phil Gramm. McCain better get some heavy hitters soon if he wants tp be taken seriously. Gramm was seriously dmaaged goods . . .
>
Previously:
Recessions Often Begin With Positive GDP Data (May 2008)
http://bigpicture.typepad.com/comments/2008/05/positive-gdp-re.html
>
Sources:
Phil Gramm Is Right
Amity Shlaes
Washington Post, Saturday, July 12, 2008; A13
http://www.washingtonpost.com/wp-dyn/content/article/2008/07/11/AR2008071102543.html?hpid=opinionsbox1
The NBER’s Recession Dating Procedure
October 21, 2003
http://www.nber.org/cycles/recessions.html
Business Cycle Expansions and Contractions
National Bureau of Economic Research
http://www.nber.org/cycles.html
Bureau of Economic Analysis
GDP
http://www.bea.gov/national/index.htm#gdp
Forgotten Man: A New History of the Great Depression (Hardcover)
by Amity Shlaes
http://www.amazon.com/exec/obidos/ASIN/0066211700/thebigpictu09-20
Saturday, July 12, 2008 | 05:30 PM | Permalink
| Comments (64)
| TrackBack (0)
add to de.li.cious | 
digg this! | 
add to technorati | 
email this post
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c52a953ef00e553b407228834
Listed below are links to weblogs that reference Amity Shlaes Does Not Know What a Recession Is:
Comments
WOW Barry... it's like TAKEDOWN WEEKEND for you here! I wonder who will be next...
Posted by: Sherman McCoy | Jul 12, 2008 6:15:52 PM
"the real fun won't begin until they start investigating his work on the 2000 Commodities Futures Modernization Act . . ."
let's not forget the GLBA act he sponsored which repealed Glass-Stegall and caused this financial mess we're supposedly not in.
Posted by: m3 | Jul 12, 2008 6:20:01 PM
I'm quite surprised Amity Shlaes would write something like this. I enjoyed The Greedy Hand and The Forgotten Man immensely, and I would think she would lend some perspective to the current financial debacle. Unfortunately, her piece is extremely thin or details and heavy on floating, airy politicking.
Barry, this blog is heavy on information, which, as the case is (not "may be"), is quite pessimistic on short, mid, and long-term economic growth. This information often rings much truer than the contrived 5.5% unemployment rate. Who knows? She says Phil Gramm is right. Maybe she holds a ton of UltraShorts.
Posted by: Chris Naaden | Jul 12, 2008 6:26:42 PM
A recession is NOT two consecutive quarters of GDP contraction.
Not to mention GDP is horribly inaccurate as a measure of economic growth, especially when government spending grows due to deficit financing.
Posted by: cavjam | Jul 12, 2008 6:28:55 PM
Amity Shales: The numbers say we are not in a recession. We are not in a recession.
BR: Your definition of recession is wrong. We are in a recession.
Me: The numbers are phony. We are in a recession.
Posted by: Paul Jones | Jul 12, 2008 6:37:26 PM
We are now booming. With imports down and exports up they are revising growth higher. Of course when they use too low of an inflation rate in the calculation, we will never show negative growth.
Posted by: me | Jul 12, 2008 7:07:06 PM
Why isn't the fact that Gramm spearheaded effort to deregulate Wall Street front page headlines? I mean, this is a guy that took legislation written by the financial engineers and got it passed without scrutiny. This mess and the root cause of it can be traced back to Senator Gramm and his efforts!
Do journalist not understand what the problem is, or do they think the American public is too dumb to understand?
Posted by: Paul Stiles | Jul 12, 2008 7:07:26 PM
What's funny is that Shlaes maintains that some "vast media conspiracy" campaign to talk down the economy is making people feel overly pessimistic. As far as I can tell, the truth is that things are FAR worse than they appear through the lens of the MSM.
LEH is on its way out and soon. That much is painfully obvious. We don't lose TWO of the largest investment banks in the world over the past six months unless the system is hopelessly broken.
If folks suddenly became aware of how bad things really are, then we would have some real problems on our hands. I think it's nutty how complacent everyone has become in the face of complete and utter disaster.
If the "smart money" has been destroyed, then what's to become of the rest of us?
Posted by: insaneclownposse | Jul 12, 2008 7:11:57 PM
BtW - that Ph.D. in econ which Dr. Gramm purports to have check out this review by a serious economist at EconBrowser:
http://tinyurl.com/6hvhoj
Turns out he wrote a bad literature review not a serious work of mediocre scholarship.
Posted by: dblwyo | Jul 12, 2008 7:12:47 PM
One of Shlaes obsession is debunking the New Deal as a socialist scheme designed to make the elderly dependent on government hand-outs. For Shlaes, FDR is one of the great villains of the 20th century. You can read about it in her book, the name of which, I can't be bothered to google.
Posted by: Cardogan | Jul 12, 2008 7:24:04 PM
I heard Amity Shlaes on the radio show Left, Right, & Center. She's like one of those wind-up dolls. You pull her string and she spews a litany of RightWing claptrap.
Here's the then Senator Gramm (R-TX) from 1993 when President Clinton's tax and budget legislation was making it's way through the Congress:
"I want to predict here tonight, that if we adopt this bill the American economy is going to get weaker and not stronger, the deficit four years from today will be higher than it is today and not lower ... When all is said and done, people will pay more taxes, the economy will create fewer jobs, the government will spend more money, and the American people will be worse off."
At least a stopped clock is accurate twice a day.
.
Posted by: VJ | Jul 12, 2008 7:26:16 PM
Gramm and his family are some of the classic frauds of the last 40 years. While feeding at the public trough in Congress for over 30 years, he railed about big government. Then he became a lobbyist for big business under the guise of joining a think tank.
His wife is part of some right wing think tank, raking in bucks from big business. She was also on the see-no-evil Enron board of directors..
I'm sure they don't see anything to whine about.
I really don't like Obama; he's a machine politician who got the nomination by pretending to be something new and latching onto a few catch phrases. If he gets off script, it's clear doesn't know issues. He's bought and paid for by the big special interests, including Wall Street, and they will continue to run the country under him. For example, a recent LA Times article said:
"Records show that four out of Obama's top five contributors are employees of financial industry giants - Goldman Sachs ($571,330), UBS AG ($364,806), JPMorgan Chase ($362,207) and Citigroup ($358,054)."
But, McCain continues to surround himself with people like Gramm and Carly Fiorina, whose success in running HP certainly qualifies her for a high post. He also continues to make statements that show he's politically and factuallly clueless, like embracing the policies of a President with an approval rating in the 20's: tax cuts for the rich during an economic downturn, not knowing the difference between Iran and Al Queda, etc.
We are doomed.
Posted by: Mike in NoLA | Jul 12, 2008 7:41:34 PM
Gramm was was also instrumental in the repealing of Glass-Steagall Act of 1933 which many economists blame for todays problems
Gramm-Leach-Bliley Act
The bills comprising the act were introduced in the Senate by Phil Gramm (R-TX) and in the House of Representatives by James Leach (R-IA). The bills were passed along party lines with Republican support in the Senate[1] and with bipartisan support in the House of Representatives[2]. It was signed into law by President Bill Clinton.
http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act
Repeal of the Act
On November 12, 1999, President Bill Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933. One of the effects of the repeal was to allow commercial and investment banks to consolidate. Several economists and analysts have criticized the repeal of the Glass-Steagall Act as contributing to the 2007 subprime mortgage financial crisis.[6][7]
Losses at financial firms from the mortgage collapse may eventually triple to $600 billion as defaults on home loans grow, says Zurich-based UBS AG. One reason banks are losing money is the repeal nine years ago of the 1933 Glass-Steagall Act, which separated commercial and investment banking after excessive risk- taking contributed to the Great Depression, Eveillard said.
The repeal enabled commercial lenders such as Citigroup, the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities.
Citigroup, which has fallen 36 percent since reporting in January the biggest quarterly loss in its 196-year history, may have writedowns of $15 billion this quarter, according to New York-based Merrill Lynch & Co. That would add to the $22 billion that Citigroup already lost because of the housing slump.
Citigroup played a major part in the repeal. Then called Citicorp, the company merged with Travelers Insurance company the year before utilizing loopholes in Glass-Steagall the allowed for temporary exemptions. With lobbying led by Roger Levy, the "finance, insurance and real estate industries together are regularly the largest campaign contributors and biggest spenders on lobbying of all business sectors [in 1999]. They laid out more than $200 million for lobbying in 1998, according to the Center for Responsive Politics..." These industries succeeded in their two decades long effort to repeal the act. Also, "The newly formed Citigroup announced only days after the deal that it had hired recently departed Treasurey Secretary Robert Rubin as a member of its three-person office of the chairman".[8]
"Glass-Steagall protected bankers against themselves," Eveillard said. "Bankers are sheep. They don't mind going over the cliff if everyone else goes over the cliff."
Posted by: Mint | Jul 12, 2008 7:53:19 PM
For me a recession is primarily when I work and produce more, but can afford less with what I get paid. Secondarily, a recession for me is when the value of my assets keeps going down in price for a prolonged period of time.
A severe recession for me is when there's little or nothing that can be done to correct the two conditions listed above. Indeed, finding a higher paying job is harder than 2 years ago, getting a good price for your house is near impossible. And without much flexibility of choices, my 401(K) is 100% in money markets, @2.19%, while every stock fund in the plan is down YTD, and down double-digits since the peak. Not to mention the dreaded "I"-word - the Inflation. That too contributes to my "recessionary" state.
Don't know for the rest of you, but for me personally this is a severe recession.
Posted by: Bthunder | Jul 12, 2008 8:00:36 PM
"it is insulting to all those whiners dealing with food and energy inflation and asset deflation."
Barry, can we truly have any sort of inflation and at the same time have "asset deflation"? To me, this is impossible. I know the destruction of debt is real, and with it has gone the so-called fictional capital it created - so without a money-debt-engine to drive it, how can there be any inflation?
However, if commodities and food were being horded, turned to as representing real wealth instead of paper monies, the idea of rising food and energy costs and deflating assets makes sense.
The Austrian school calls it the crack-up boom.
Posted by: Winston Munn | Jul 12, 2008 8:01:48 PM
re: 'can we truly have any sort of inflation and at the same time have "asset deflation"?'
Maybe not at the same time, but we can certainly be whipsawed by back-to-back steep periods of deflation and inflation.
The worst of both worlds, as it were.
Posted by: constantnormal | Jul 12, 2008 8:19:55 PM
"Phil Gramm is working hard at submarining John McCain's Presidential campaign"
Keep up the good work
Posted by: Bob A | Jul 12, 2008 8:39:07 PM
Just happened to catch a History Channel program this afternoon on the fall of the Roman Empire and the subsequent onset of the Dark Ages. Now THAT was a recession. Only took a few centuries to get past that one.
Of course Gramm and Shlaes would probably opine that those Western Europeans were just whiners and it was really only a mental Dark Ages.
I guess the only bright spot was that the Eastern Empire "de-coupled".
Posted by: Al Czervic | Jul 12, 2008 9:25:48 PM
Shlaes is a neoconservative shill. Her book about the depression lays it all at FDR's door and with the benefit of seventy years of hindsight she tells you how she would have avoided the same pitfalls. These people are pathetic really and belong in the same category as holocaust deniers or believers in Atlantis.
Her defense of Gramm is not only wrong in fact as BR points out but she even starts moving the goalposts as he did to "clarify" that he didn't mean we were all whiners etc etc. Unfortunately there's a YOUTUBE out there of him actually saying it. This guy is a multimillionaire deputy chairman of UBS and he's lecturing the American people on whining. UBS meanwhile has so far written down about $19 million and is under investigation by the IRS for massive tax evasion strategies.
You can't make this stuff up.
Posted by: John | Jul 12, 2008 9:28:17 PM
"I'm quite surprised Amity Shlaes would write something like this. I enjoyed The Greedy Hand and The Forgotten Man immensely, and I would think she would lend some perspective to the current financial debacle. Unfortunately, her piece is extremely thin or details and heavy on floating, airy politicking."
Posted by: Chris Naaden | Jul 12, 2008 6:26:42 PM
Chris,
see if this:
http://www.cfr.org/bios/7536/?groupby=1&page=1&hide=1&id=7536
additional biographical background lessens your surprise.
this book: http://www.naomiklein.org/shock-doctrine provides a workable outline of what Schlaes' cohorts are all about..
Posted by: Mark E Hoffer | Jul 12, 2008 9:28:53 PM
Shakespeare poke of people like Gramm centuries ago:
So that in venturing ill we leave to be
The things we are for that which we expect
And this ambitious foul infirmity
In having much, torments us with defect
Of that we have, so that we do neglect
The things we have, and, for want of wit
make something nothing by augmenting it
What win I if I gain the thing I seek
A dream a breath a froth of fleeting joy
Who buys a minutes mirth to wail a week?
Or sells eternity to get a toy?
For one sweet grape who will the vine destroy?
Or what fond beggar, but to touch the crown
Would with the sceptre straight be strucken down
Times glory is to calm contending kings
To unmask falsehood and bring truth to light
To stamp the seal of time in aged things
To wake the morn and sentinel the night
To wrong the wronger till he render right
To ruinate proud buildings with thy hours
And smear with dust their glitt’ring golden towers
Rape of Lucrecia
Posted by: AGG | Jul 12, 2008 10:43:00 PM
So where are the people that will defend Gramm.
I expect that over 80% of the US populace (aka whinners)knows that the economy is a mess and they are suffering . About 10% don't have a clue what is going on. That leaves maybe 10% that would support bush/mccain as the ship slowly sinks into the depths. After all that 10% includes the few percent that have gotten rich over the last eight years and the few percent that are eagerly waiting on Armageddon. I wish I was kidding but a lot of these people have been in charge and we are just starting to see the results of their handy work.
Posted by: John | Jul 12, 2008 11:01:30 PM
Barry, I have come to expect better of you. What Graham & Shlaes have said is defensible in the sense that the unemployment rate is better than its average for the last 30 years & objective measures of economic health are well above the recessions of the 70's, etc. I agree with you that hard times are in the offing, but we aren't there yet. You have better things to do than nitpick these 2.
~~~
BR: You apparently have not read what I've written about NFP, Unemployment, or Inflation over the past 5 years.
If you believe the U3 rate (5.5%) is accurate, then of course we are fine. If on the other hand, you believe the U6 measure (9.9%) is closer to reality, then not so much . . .
Posted by: algernon | Jul 12, 2008 11:09:11 PM
algernon:
I don't think your premise regarding numbers then vs. numbers now holds water. They're apples and oranges.
I think TBP has been over this topic before. If I'm not mistaken, it was pretty much accepted (and logical) that the picture is bleaker if you use the same set of metrics for all time periods (if possible), and that the numbers that are currently released, regardless of measurement criteria, are fudged.
Thickly fudged.
Posted by: Marcus Aurelius | Jul 13, 2008 12:19:40 AM
"Expansion is the normal state of the economy" - I don't think so. In order for expansion you must be selling more and meeting people's needs. But once people's needs are met, they don't need any more, so there is (or should be)a subsequent dearth of demand.
American consumers have overdosed on debt, so they won't be spending for a good long time.
They have bought overpriced homes that are now falling in price, so they are losing and walking away from their homes and the ability to buy again in the near future.
"If the "smart money" has been destroyed, then what's to become of the rest of us?"
The smart money was actually really dumb. They lost sight of fundamentals and started thinking debt was as good as cash in a market full of fraud.
Pay off your debt as fast as you can, don't go into new debt, have some emergency cash and some food storage and you should be fine.
Don't knock storing food. How many banks have to go down before the FDIC is out of funds? In a time of worry, it is nice to know you can still feed the fam.
Posted by: Michaela Stephens | Jul 13, 2008 12:30:12 AM
