Kevin O’Rourke links to an interesting paper by Jeff Frankel which discusses different ways recessions are measured. The standard European measurement says that when an economy falls two quarters in a row it is officially in recession (we know all about that given our official double-dip). This measurement has the advantage of being statistically clear and simple. This, though, can lead to false readings. For instance, over two years the economy declines in half of the eight quarters – leaving it much lower. If, though, none of those quarters were consecutive, then according to the European measurement, there was no recession even though output has fallen. This may be an extreme case but it shows how quirky this measurement can be.
The US has a different way of measuring recessions. According to Frankel:
‘In the United States, the arbiter of when recessions begin and end is the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER). The NBER Committee does not use that rule of thumb (Europe’s two consecutive quarters of decline), nor any other quantifiable rule . . . When it makes its judgments it looks beyond the most recently reported GDP numbers to include also employment and a variety other indicators, in part because output measures are subject to errors and revisions. The Committee sees nothing special in the criterion of two consecutive quarters.’
The problem with this approach is that there is no single definitive measurement so disputes easily arise.
I’d like to introduce another way to measure a recession. It is based on the sinking-ship metaphor. A ship starts sinking. It eventually stops and starts to rise again. While it’s rising back to the surface we can say that it is in recovery mode. However, it will remain below water until it gets back to the surface.
Similarly with an economy: an economy goes into decline, eventually stops falling and starts rising. However, it remains metaphorically below water until it returns to the point at which it had started sinking. If an economy is below its pre-recession levels it remains ‘recessed’.
Take, for instance, the US Great Depression in the 1930s. The economy tanked big time in 1929. However, by 1935 the economy had experienced nearly three years of rising GDP, employment, consumer spending and investment. However, no one then (or now) would have said that the Great Depression was over by 1935 – it was still well below its 1929 level.
In 2007, the economy was generating a little over €43,000 for every woman, man and child. As seen, according to the IMF projections, even by 2018 the economy will not have returned to the 2007 level. It won’t happen until 2019. In other words, the economy will remain under-water for 11 years – in other words, ‘recessed’.
Of course, this is GDP – which is flattered by multi-national accounting practices (profit-tourism, etc.). What does it look like when we measure GNP per capita? Here we use the Government’s own assumptions in their end-of-the-decade scenario.
When looking at this domestic measurement (with all its faults) we find that the economy will be underwater for 14 years. 14 years. We won’t find ourselves above pre-recession levels until 2022. And if that’s not depressing enough, the ESRI’s John Fitzgerald estimates that even our GNP figures are over-stated given the presence of re-domiciled multi-nationals. The real GNP figures are substantially lower which suggests that a return to the surface could take even longer based on projected trends.
Staying with the metaphor, when the ship returns to the surface what kind of shape will it be in? Even though the economy has returned to the surface, many people will still be underwater. The Government’s end-of-the-decade scenario projects double-digit unemployment by 2019. Average real wages may not return to pre-recession levels until 2020 and even later. How many will still be living in deprivation, how many in poverty, how many will have emigrated? The ship may be back on the surface, hundreds of thousands won’t be.
To give another idea of what we’re facing into, let’s use the Government’s assumptions to track the ‘jobs recession’.
We won’t return to pre-crisis levels of employment until 2024. That’s 16 years under-water.
So when we start growing again – GDP, domestic demand, employment – just remember: we will have to grow for a long-time just to get back to where everything started collapsing. In other words, the ship may start rising soon but we will be underwater for a very long time.
Hopefully, you can hold your breath.
By Michael Taft,
THE threat of unemployment since the recession has led to a decline in men’s mental health, a study suggests.
The authors, who wanted to examine whether the recession had an impact on levels of anxiety and depression, analysed data concerning 107,000 people taken from the annual Health Survey for England for adults aged 25 to 64, between 1991 and 2010.
Their findings, published in the online journal BMJ Open, show that rates of poor mental health were highest between 1991 and 1993, when the UK was in recession, after which they fell steadily until 2004.
The rates then started to gradually rise until 2008, at which point they rose sharply.
In 2008, when the downturn began, the prevalence of people suffering from anxiety and depression was 13.7%, but the figure rose to 16.4% in 2009 and fell to 15.5% in 2010.
Men appeared to be worst affected. The rate of poor mental health in men rose from 11.3% in 2008 to 16.6% in 2009. In women, the rate only increased by 0.2%, to 16.2%.
The authors concluded: “The finding that mental health across the general population has deteriorated following the recession’s onset, and (that) this association does not appear to be limited to those out of employment nor those whose household income has declined, has important implications.
“Previous research has highlighted the importance of job insecurity, rather than solely employment status, as potentially resulting in adverse effects on mental health.
“One potential explanation for our results would be that job insecurity during the current recession is responsible for the deterioration in mental health, with men’s psychological health remaining more affected by economic fluctuations despite greater female labour market participation.”
Justine Schneider, professor of mental health and social care at the University of Nottingham, said: “It’s long been recognised that the impact on mental health of job insecurity is worse than that of joblessness, these recent analyses confirm that the threat of unemployment is in itself harmful.
“When people lose their jobs they react in different ways; some people thrive and this offsets the average impact. Young people however are particularly badly affected by unemployment, which seems to reduce their self-esteem and increase the risk of depression.”
Dr Amy Chandler, research fellow at the Centre for Research on Families and Relationships at the University of Edinburgh, said: “This new analysis provides further support to theories that suggest that men – more than women – might be affected negatively by unstable job markets and rising prices.
“An interesting addition to current knowledge is the authors’ finding that this decline in mental health was also apparent among men who were employed, whereas previously much has been made of the association between unemployment and poor mental health among men.
“This suggests that there should be acknowledgement that recession can impact negatively upon men in general, whether in employment or not.”
– Ella Pickover