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May 31, 2010

Defining a recession

Many economists are saying the recession is over, but how can they say that? We still have 8 million people nationwide who have lost their jobs in the last two years, and the unemployment rate is near double digits. Are economists just out of touch with the real world?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, we don't think so. ... And this really gets at what we mean by a recession. Now I can say that economists are the ones who have defined a recession, so in some sense we can take ownership for this: A recession means the economy is going backwards.

"So think of you driving a car, and as long as you are driving that car and you are making forward progress, you are not in a recession. In fact, we would say you are in an economic expansion.

"But let's say your car stalls, and let's say you were going up a hill and you stall and the brakes don't work. You actually slide backward; you slide down the hill in your car. We'd say then you were in a recession. But once you got control of that car and you were able to stop the car -- and let's say you were able to restart the engine and able to resume your upward climb on the hill -- we'd actually say the recession is over, even though it may take you a while to get back to where you originally stopped and the car stalled.

"So as long as the economy is making forward progress, we say we don't have a recession. The recession is over. It has nothing to do with how long it takes to recover what we lost during a recession. That's a whole other matter. As long as we are moving forward economists, say we are not in a recession."

Posted by deeshore at May 31, 2010 08:08 AM