Are we in a Recession?

If you are a Republican, we are, if a Democrat, apparently not.
Life is so simple these days. If it is perceived as bad and your opponent is potentially responsible, it applies. If your team is potentially responsible, then it does not.

If you are neither, you have the burden of trying to actually figure out the answer to the question.

A recession is technically defined as negative growth in GDP over 2 consecutive quarters.
This has happened.
It also assumes that a contraction in the economy will result in significant job losses and increased unemployment.
This has not happened yet, so it can be argued that it is not really a recession, because folks are not desperately looking for work.

What is unique in this case is that thanks to COVID, people were forced to stay home, and many have not returned to work, but have not filed for unemployment either. They have exited the workforce, a disproportionate number being woman, and also younger adults and early retirees. It appears that folks have chosen alternative lifestyles. Now if one stays at home and mows your own lawn, paints the house yourself, or decides to raise your children yourself rather than employ a day care mom, you continue to add value to the economy, but you no longer factor in the GDP calculation. So perhaps the Democrats are correct, the true economy is not contracting.

If you are sitting at home living off government handouts however, then you are contributing to inflation and not adding value to the economy. Then the Republicans are correct, we are in a recession.

The key for me therefore is what are these folks doing that exited the workforce and are now contributing to supply chain challenges in the formal sector. Are they contributing to the economy in the informal sector, or are they sitting on their a@#$?
Anybody know?


I’ve asked myself the same question. How is it that there is a labor shortage when the normal thing is unemployment? The whole situation seems somehow unreal.

How extensive is this phenomenon (globally)?

Because a huge number of people are no longer counted as being in the labor pool - they are not actively looking for work.

The denominator for U6 unemployment, the most commonly quoted value, is the labor pool, which only counts those currently employed plus those actively looking.

Labor force participation has dropped to rates not seen since the 1970’s, when women began joining the workforce en masse.

So, currently, we have the illusion of low unemployment if looking strictly at U6.

And that’s how you can have “low unemployment” and a labor shortage.


Thanks Data that would answer it. So what are all those formerly working people now doing? Anyway I’ve always considered that way of measuring unemployment to be bogus. I suppose U6 might have it’s uses, but it shouldn’t be the main metric.

We’ve seen a huge number of RNs (and other clinicians) simply throw in the towel and retire, some quite early. They may or may not come back someday.

I also understand that a gigantic number of lower-income young people have just moved back in with mom and dad.

The US Bureau of Labor Statistics keeps lots of unemployment stats (the “6” in U6 means it’s the sixth in their list). Typically U6 works fine, because changes in labor pool participation (the denominator) are gradual. But not these days.


Thanks again, that’s simple and informative.


Is it an elusion? All around me are “Help Wanted” signs. Restaurants and just about every small business is struggling too find people. Places limit seating to the number of staff on hand with tables standing empty.

Places with shift workers are closing early.

I don’t think it is an elusion. The people have disappeared. Perhaps COVID did kill off many of the young and the media is just hiding it from us?

If they are alive, they are living below the radar somewhere doing something more interesting than work? If they are adding value, then we are not in a recession.

Where have all the people gone?

Its appear that the trend towards later retirement has reversed, estimated to account for about 2.2. million Americans under 65 taking retirement against previous trends. Same for staying home to care for someone with over 21% of woman and 5% of men reporting that this is the primary reason for staying out of the workforce.

I think that is also true, accounting for the server staff not bothering to work for tips.

Whatever the answer, it all feels very weird to me.

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This could be partly the result of a natural trend – more ‘super-elderly’ parents living, and with their children, 50, 55+, becoming principal caregivers.

What we can’t make out from the statistics is how many younger people – especially perhaps those moving back home to live with parents – how many of them are working in the gig economy in one way or another, and are not looking for other work. They should be within the denominator of U5 which includes ,

“other “marginally attached workers”, or “loosely attached workers”, or those who “would like” and are able to work, but have not looked for work recently.”

But they are hard to identify. The question becomes the ‘misfit’ – what kind of jobs might htey take if they saw them, vs. what kinds of work are available, and where. Are these ‘college-educated’ kids who don’t want to work with their hands or feet doing restaurant or warehouse work? Uninterested in a skilled craft, but pursuing music and arts?


I don’t agree. Redefining words for partisan purposes only serves political aims, and is inimical to one of the founding principles of America’s democratic Republic. Democracy is supposed to hinge upon a well-informed electorate, and even though Churchill might have something to say about five minutes with the average voter- when we’ve reached the stage that major government spokespeople routinely lie and obfuscate the truth of basic definitions- and large parts of the media only call bullshit tangentially- then democracy itself is in peril.

Plus, the larger story is that the Fed is currently pursuing a policy which aims to see 10% of Americans who both want and need jobs unemployed within a year- when almost all of the inflationary pressures are due to the supply shock of the largest global non-wartime government intervention in history (plus, a war in Ukraine).

However, you are correct that much of the labour shortages are a result of mothers and early retirees leaving the workforce. Another aspect of the situation is the employment status and employability of the unvaccinated. Although the OSHA requirement has been withdrawn many employers still maintain a vaccine requirement despite the overwhelming evidence that vaccination does little to prevent virus spread (despite the fact that it still improves individual health outcomes).

I couldn’t think of a search sufficiently refined to look at labour shifts for high-skilled or high-knowledge workers downsizing into working for unvaccinated friendly small businesses, but I know of several high income, high knowledge American professionals who now routinely face the overly aggressive inquires of ignorant co-workers persisting in the delusion that their vaccine status represents a substantial increased vaccine risk to them personally. Scarlet letters abound.

The market is an iterative process which works best through heterodox economics. This cultural leftover from the pandemic is causing quite substantial economic harm. We should be aiming to reintegrate these workers, instead of punishing them for a now obsolescent sin. Perhaps the worst occupational/reluctance nexus is with pilots, where the elevated rate of risk of death from myocarditis from working in a pressurised environment represents the greatest occupational health risk of all (given that vaccination won’t significantly stop subsequent infection and the risks are thus cumulative).


Don’t agree that the economy might in fact not be contracting? Or don’t agree with redefining words for partisan purposes, or both?

I’m on board with the second issue, and the one you specifically state, and clearly this is what the Democratic Party is locking on to. I’m not however stuck with a unidimensional view of what is happening here based on a single metric, because what is actually happening matters.

Interesting, when describing your concerns with a recession, you focus on employment, not GDP.

So your real concern with a recession would appear to be unemployment (as is mine). I see pictures of starving unemployed when I visualize a recession.

That has not happened yet. It should have for the reasons you state, so hence I ask the question, why not?

Perhaps we can touch on one of my key problems with GDP, it does not adequately capture employment in the informal sector, which accounts for over 60% of the economy globally. Particularly invisible is the economic impact of the stay at home mom. Despite accounting for a disproportionate impact on the health and well-being of a community and it’s standard of living, she counts zilch in terms of GDP.

So let’s say I decide to retire early, take care of the garden myself, and not employ a garden service that has to pay employees, benefits and taxes, forego a gym subscription because I now walk behind a lawn mower outside in the fresh air rather than on a treadmill, take care of my grandchildren after school so my daughter does not have to pay for daycare, and take over the cooking so that we don’t have to eat out as often?

Previously to earn that income I had a 45 minute comment each way, and had to pay State and Federal taxes, and of course VAT on every transaction. As far as GDP and tax revenues are concerned, I contributed to a decline in GDP. The cost of goods and services goes up because folks like me no longer contribute to the “formal” supply chain.

In reality in my little world, the cost of everything on balance went down, and if anything my sense of worth and value went up.

Hence I ask the question, in aggregate with people like me, has inflation truly gone up, and am I in a recession?

So now the Fed pushes the interest rate up in an effort to curb inflation. What actually happens to self reliant people like me? For a start I am beginning to earn interest on savings accounts that previously were zero. I start paying taxes on this earned income. I become visible in the formal economy. The formal economy appears to grow!

Life is clearly not one dimensional. I hate the habit perpetuated by business schools of focussing on a single metric. Every organization I have ever worked for does it, and every time it has been to its detriment.

Hence I resist redefining words for purely partisan purposes, but I am prepared to redefine what it means to grow an economy.


The economy is contracting.
rate of GDP growth < rate of inflation = contraction.

To put it more clearly, I don’t agree with redefining economic terminology. Two consecutive quarters of economic contraction equals recession.

No, that was a pivot. Current Fed policy won’t work for the simple reason that labour rate rises are only a small component in inflation, currently. All the Heads of State in the West should be telling consumers to only make essential journeys, ride share and think about turning the thermostat down this winter, whilst wearing a jumper.

What most people miss is that there are both huge social costs and persistent externalities which go along with sustained unemployment.

It’s also a supply shock recession. People neglect the fact that government has socially engineered huge swathes of the public away from the service sector and towards physical goods. Many older people won’t go to a public venue unless it is open air (in some cases justifiably), whilst many young have become virtual lock-ins (hysteria).

This is one of many reasons why we should scrap welfare and move to an individual negative income tax, regardless of family or cohabitation status.

"Universal Basic Income" is Just a Negative Income Tax with a Leaky Bucket - Niskanen Center.

You should be able to retire in style and keep most of these virtuous cycle activities intact, if that’s your preferred choice and you have the finances to allow it. Rank ordered states by redistribution shows that this economic activity is far more beneficial in terms of both reducing economic inequality and reducing poverty than government redistribution (although why anyone should care about the former defies comprehension- unless it’s a reflection of a rigged game).

However, if you are feeling altruistically-minded (or patriotic) you should vote for politicians who promise to tackle housing affordability (as opposed to affordable homes), especially if the means described are libertarian planning reforms. Many young couples desperately want more children, but cannot afford not only because of the payment of the principle on their mortgage, but also the interest paid on historically oversized mortgages.

It’s the single biggest cause of population collapse in Western countries.

Look, I certainly agree that GDP shouldn’t be the be all and end all. But given the clear economic blame being felt by most in the West and the fact that more than any other president in history, the blame for the current Western situation can be laid at the door of one man (or party) currently holding the White House, is it perhaps understandable that the Democrats are looking at the worst possible defeat in recent decades, despite SCOTUS producing a ruling which shows an overwhelming percentage of the electorate against the decision.

  1. Not averting the Ukrainian invasion with guarantees to Russia on the independence of Ukraine from either EU or NATO involvement.

  2. Pursuing an ‘all talk, no teeth’ attitude to climate change, which fundamentally shook market confidence in the oil and gas industry globally, affecting the investment mood and causing analysts to predict future higher price expectations. It’s not so much about current spot prices but more about future expectations and a fundamental change in the risk calculation for this type of investment. Above all, we should be looking at ESG investment as a potential disruptor profiteering under the misguided principle of using pricing to manipulate consumption.

  3. A failure to strategically realign with the Saudis as soon as it was clear Russia was invading.

  4. Failing to use American clout to prevent other Western leader from causing huge man-made disruptions to global food supply during a period when food insecurity is severe and imminent risk on a huge scale.

  5. Failing to come out of lockdowns as soon as vaccines had been made available to all citizens. The writing was on the wall by Summer 21. McKinsey was even brave enough to publish openly on the subject of Covid likely becoming endemic by August 21. The situation required leadership, regardless of the temporary political costs.


Except that it isn’t ‘earned’. When one collects interest and genuine market rates, one could say that one’s capital is actually ‘earning’ something since it is used by the borrower to create value. But when the government announces an interest rate higher than the market rate, surely money is being created out of nothing and thus it seems to me it is inflationary, not the contrary.

Purely anecdotally this is what I hear from every young couple I know. You have to win the lottery to have enough money to raise a kid and God only knows what awaits them when they grow up.


Yeah, it is very non-intuitive. You are right that lending creates excess monetary supply and can lead to inflation. Consider a very simple example. A man puts 100 dollars into his bank account. The bank lends 90 of that to someone else. There is now effectively 190 dollars in currency.

The concept of “market rate” vs “government rate” gets confused very fast. In America, there really is no “market rate” that exists independent of the government. Well, not outside of the payday loan industry really.

The Federal Reserve Bank loans money to other banks at the a rate called prime. So if Prime is 5%, then the banks can take these loans at 5% and then lend the money to people at 6%. Essentially making a 1% profit if the loan is paid back in full. To further profit the banks will generally loan part of their own money, and then borrow the rest from the Fed. So the rate the Fed lends becomes extremely bound up in the “market rate”.

When the Fed raises the rate at which they lend, banks will either loan more of their own money (which will cause them to be more restrictive in who they loan to) or to raise the rate which they will lend. Either of these outcomes results in less lending occurring. And since lending creates excess currency, a restriction on lending helps reign in inflation.

Make sense?


It appears that you and I have a similar logical process for evaluating a particularly situation. The difference therefore is most likely perspective. I tend to look at things from as fundamental a perspective as possible, (in economics that means dumping terminology and ratio’s) and forward looking (we are where we are, now what?). I try to understand economics without the jargon, like monetary policy, gross domestic product and inflation.

So in hindsight, did Biden screw up? Yes he did. He made energy less accessible, and forced disruptions in the supply chain through lock downs and vaccination mandates. At the same time he gave people free passes to access goods and services without them having to add any value.

Net result, more and more people have access to less and less stuff.

So now that we have acknowledged that Biden screwed up, what should we do now?

Step1 is to stop handing out free passes and get people back to work earning the right to access more stuff and in the process helping to make more stuff. They are not returning to work. Why not? They have another source of free passes? They have access to the stuff without the need to trade? They found out they can make do with less stuff.
That’s the key question.

I fail to see the distinction. The government hands out passes to people to get access to free stuff. More and more people get access to less and less stuff.

I don’t understand.

If you mean find ways to make it less expensive to create the home in the first place rather than give people free passes to more expensive homes then I am on the same page.

UBI does not affectively account for stay at home moms or the activity I described as a retired person. In reality more and more people end up getting access to more and more stuff when people pull their weight this way, it just does not show up in the metrics. Hence, sorry, I don’t live and die by the metric or the simple equation.

That equation is not always true.
What that equation says is demand is outstripping supply, both could be growing. The demand is just growing faster. The economy is not contracting.

On average people are getting poorer, but there could be more and more of them.

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Mythfortune explains this in more formal terms. From a tax perspective it is earnings, that is the context intended.
“Earnings” in the basic sense of economics does not exist either. It is traded value. I will do something for you in exchange for you doing something for me. If you will only return the favor at some point in the future, I expect a little more in return due to the risk that you might die or just run out on me. The premium we call interest.

Well, when evaluating whether welfare or a negative income tax are disincentives to work- the answer is yes to both, but considerably less for the NIT (UBI pilots show neither an increase in employed or a reduction (the effects cancel each other out- plus, reform the IRS to a PAYE tax system, with NIT built-in, massively reduces federal bureaucracy. Depending upon whether you are a Dem or a Republican this displaced labour can be either scrapped or reallocated to far more productive uses which serve the people and communities. I would also add that it would probably be a good idea to have a lower NIT level for under 25s with no children and no in education or vocational training.

The other benefit is that an NIT is far kinder the mothers who want to take a few years career break to raise the kids until they reach school age. But by far the greatest benefit is that it doesn’t penalise fatherhood. It’s built into the tax system- so there are no incentives either way.

It also supports casual, part-time, contract and gig economy work, as a means of transitioning into full-time employment.

OK. Economic liberty improves outcomes by American States and Countries. One landmark study showed that reducing taxes on the middle classes actually created improved outcomes by a range of metric which government usually preoccupies itself with solving. Poverty is LOWER in states with less redistribution, as is economic inequality- but the most surprising result of all was that the free market was better at eliminating child slavery in Africa than government intervention.

That doesn’t mean I don’t think there are some things which government should pay for. Some of the best healthcare systems in the world operate largely in the market, but are dual-track in terms of private and public commissioning. Plus, it would solve the dilemma of the undue burden in taxes for employers, especially for lower value labour. I also think Dan Crenshaw is correct in proposing the idea that catastrophic costs should be structuralised out for the average American. But, let’s face it, most Americans face the worst of both systems rather than the best, and most Americans haven’t got a clue why.

Cool. I used to work in the UK housing market as a manufacturing superuser for one of the largest suppliers to the building trade. Without engaging in special pleading, most people don’t realise that beyond a certain threshold on the demand curve, scarcity costs rise faster than overall price- actually squeezing the production side of the industry. Probably the most relevant application of Say’s Law I can think of.

That’s why I’m arguing for an NIT- it removes itself as a person earns more, but my position is contingent upon reforming the IRS.

Policy Implications: Supply Shocks and Economic Growth | Macroeconomics.

The recession of 1974-75 was caused by adverse supply shocks, primarily the Oil Crisis which occurred when the Arab members of the Organization of Petroleum Exporting Countries (OPEC) embargoed petroleum exports, driving up the price of oil.

Supply shock recession. We can argue about whether the all of the effects of the recession have actually hit yet, but the key indicators shows that it is all but inevitable, especially with the Fed pursuing a policy likely to actually create a recession- as a blunt tool for easing a tight labour market.

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As I suggested earlier, everything is contextual. Frame it correctly and we probably will agree. You just keep moving the context. Context for me is everything. There are no universal truths - NONE. That is where I depart heavily from Libertarian’s. Nothing has value or meaning either without context.

So given that issue, I agree and disagree with every one of your comments.

Free passes, in whatever form are a disincentive to work. We seem to agree on that.

Free passes in whatever form will result in a reduction in the overall wealth of the community in the long term. Period. I fail to distinguish between NIT, UBI or any form of welfare. People are effectively been given access to value created by others while contributing nothing themselves. Less will be done in creating wealth for the community as a result. The overall economy will be smaller as a result, and therefore on average people will be poorer than if the productive people had invested this wealth elsewhere. Scarcity will then mean that those with access to goods and services will demand more for access to them from everyone else.

This totally aligns with what I am saying.

Now if the context is easy of implementation of the welfare system, then I would agree with you, using the IRS to manage this would be more effective than existing welfare channels.

If you switch the context to incentivizing and changing behaviors in society, then one which does not penalize a woman for having a man in the house is a good idea. You still have the problem that you penalize me for getting a job.

You are still describing the dimensions of a traditional recession. What we are seeing here is different, so I’m trying to find a context in which it makes sense.

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At a guess, the period immediately following Japan’s Lost Decade beginning with the introduction of quantitative easing- with strong parallels to Ben Bernanke’s now discredited policies. I think this is another factor which many forget. Quantitative Easing aimed at stimulus or to prevent a market reset is just as harmful as free money, in the long-run.

One of the untold stories of money printing in America in the most recent period was that the stock market stimulus only prevented shareholders from losses (only a tiny portion of which are now held by domestic pension funds and insurers). In practice only those businesses with a long-term history of the deficit fundamentals would have been wiped out- many would have found private owners or been subject to management buy-ins or buy-outs.

Perverse incentives are actually worse at scale- just look at government, the disease of which it pretends to be the cure.