What If We Never Left Recession?

A trader works on the floor of the New York Stock Exchange in a file photo. Mario Tama/Getty Images

Commentary

There was some hope that the output revisions at month’s end would put to rest the recession debate. Instead, they only added more confusion because we still experienced two quarters of declining gross domestic product (GDP) as adjusted for inflation, which indicates recession.

Those inflation adjustments can be a real buzzkill.

“Real hourly compensation, which takes into account changes in consumer prices, decreased 4.4 percent in the second quarter of 2022, which followed a 4.4 percent decline in the first quarter,” the Bureau of Labor Statistics (BLS) stated on Sept. 1.

That’s a substantial rate of decline in a once-prosperous nation. There is very little hope of a turnaround anytime soon, no matter what inanities are pushed by the White House spokesperson.

Do these huge hits to real income sound like recovery? Not even close. Is it a recession? At this point, I’m really wondering whether the word has lost its meaning completely. It is, of course, not a technical term at all but—like many words in the economic lexicon—merely a metaphor. It’s an attempt to create a story around vastly complicated realities that are impossible to capture fully in any data.

Behind these terms is the idea that productivity comes in cycles of booms and busts. The task becomes to map them and chart a policy course to deal with them in hopes of creating a sustainable growth path.

But what if we aren’t really observing a cycle? What if we are living through a long shock in which our economic lives have been fundamentally upended? What if it will be many years before anything that we knew as prosperity returns—if it ever does?

A good example is that category called labor productivity, which one obtains by dividing hours worked overall by real output. The results are truly shocking: the worst declines we’ve seen since the end of World War II. Maybe it’s just an anomaly, but there sure are a lot of those going on out there. It could also be accounted for in one dramatic shift from enterprising to apathetic.

Another example is the housing crisis that has been brewing for the better part of a year. When rates were low, and people were moving all over the country, developers got busy building, and prices responded. It was the go-go times only a year ago. Then, demand shifted even as prices were still soaring. Sorting through what part of the price was noise versus signal became a great challenge.

Now, the mainstream news is raising the prospect of yet another 2008.

Let’s return to the problem of real income. The declines started hitting in early 2021 as inflation started to pick up, and output and income couldn’t make up the difference. But here’s another way to look at it. Perhaps the prosperity of 2020 was entirely a fake. It was just printed money sloshing around and put into bank accounts to create the illusion of prosperity that was then quickly taken away.

Briefly, we seemed to be richer than ever but when we woke up from that delusion, it was all made to vanish, stolen by governments and central banks. In this case, is it really correct to describe mid- and late 2020 as recovery? The National Bureau of Economic Research called the beginning and end of the “cyclical” downturn in spring 2020 with lockdowns. But perhaps it was never correct to call it a recovery at all.

The problem is that the recovery is entirely accounted for when you adjust increases in the M2 money supply by the resulting consumer price index (CPI). You get a picture of a dramatic head fake in the midst of a massive economic shock that dramatically lowered income and output all around. In other words, it’s very possible that the lockdowns of March 2020 were the starting point of the greatest economic depression in our lifetimes or perhaps in hundreds of years.

It’s not really recovery when the entirety of economic structures were on the equivalent of a 10-month heroin high. It was a big fake all along. And the new administration did everything possible to create more conditions for economic depression through more labor-market chaos, industrial restrictions, and the deployment of political and economic chaos to chart a new course for converting the entire energy sector to wind and sun from fossil fuels.

That’s nothing short of insanity, a man-made disaster.

Data: Federal Reserve Economic Data [FRED], St. Louis Fed; Chart: Jeffrey A. Tucker

That combines with the incredible news that in two years, we’ve lost three years of life expectancy in the United States. These aren’t COVID deaths, which data indicate was a replacement for what would otherwise be flu and respiratory deaths. All the data point to deaths of despair, ill-health, accidental injury, or (gasp!), even vaccine deaths about which no one wants to speak.

Regardless, these are shocking trends, affecting especially the most marginalized groups of Native American people and the poor generally. Longer lives are a huge payoff of prosperity and prosperity a result of freedom. Take freedom away and you lose everything.

To top it off, the latest data on learning loss takes one’s breath away. In sum, most kids lost two years of learning because of school closures and the insane illusion that anyone can learn anything by staring at a screen all day the same as actually going to school. The isolation and masking make matters worse.

We lost hundreds of thousands of small businesses during this period, while Big Tech and Big Industry thrived. But even here, we are seeing pressure for layoffs in technology and Big Retail. The sad life of Bed, Bath, and Beyond could start to affect all retail.

Here’s what spooks me. In the 1930s, no one knew that they were living through what came to be called the Great Depression. There were quarters where recovery seemed to be on the way, only to be followed by more disappointing news. The official measures of output didn’t finally return until the war but those too turned out to be a big fake due to massive conscription, rationing, and overall business destruction. Recovery didn’t really start until a few years after the war in 1948.

In the end, looking back now, it’s obvious that the depression of the 1930s lasted nearly 20 years. It wasn’t clear back then, but it is now.

We are sitting around waiting for tiny signs that things aren’t so bad, that sectors will recover, that prices will settle, that hope will return, that output will start rising again. We want normalcy and even hope for growth. There are conditions that make that possible but none seem to be met today. All signs point in the opposite direction. The forced reset of March 2020 kicked off a dangerous destruction of prosperity as we knew it.

It isn’t just national. It’s global.