“Recession” is a word that nearly every American is afraid to hear. The word brings flashbacks to 2008, when gas prices skyrocketed as the housing bubble burst, unemployment spiked and wages were depressed.
Unfortunately, Americans are now being warned of round two. The U.S. has already started into a recession that could be even worse than 2008, according to Dartmouth College professor David Blanchflower and University College London professor Alex Bryson.
In a paper published on Oct. 7, they predicted a massive downturn in the economy. Though unemployment has been declining, there have been significant drops in the consumer expectation indices from The Conference Board and the University of Michigan.
The former is down 5.9 points since August, while the latter is down 10.9 points since July. According to Blanchflower and Bryson, a drop of 10 points in one of those indices has helped predict previous recessions, and now seems to be no different.
Many economists are pointing to the fact that the economy is recovering from the damage inflicted by the COVID-19 lockdowns, and the Bureau of Labor Statistics reported that unemployment fell 0.4 percent in September. Falling unemployment numbers, however, are only natural after the pandemic shut down the economy.
Deloitte Insights reported in September that “economic fundamentals remain strong,” “consumers are sitting on piles of savings” and worker productivity is on the rise.
“[C]ontinued government action in the form of the bipartisan infrastructure agreement should support the economy in the short term and foster even greater productivity growth in the long run,” Daniel Bachman wrote for Deloitte.
President Joe Biden has also promoted the narrative that the economy is doing well. In comments on Sept. 3, he declared that we are seeing “economic recovery that is durable and strong,” according to an official White House transcript of his remarks. He seems convinced that “The Biden plan is working. We’re getting results. America is on the move again.”
But Blanchflower and Bryson wrote that the government’s unprecedented meddling in the labor market during the pandemic has allowed employment to recover quickly and thus skewed the numbers that would be normally indicating and predicting an economic downturn.
“As we have shown, ordinarily when recession is coming, we would expect to see an increase in the unemployment rate — our rule of thumb is a 0.3 percentage point upturn in consecutive months — and declining employment. This is not what is happening,” they wrote.
“On the other hand, there are clear downward movements in consumer expectations in the last six months which, according to our rules of thumb regarding 10-point declines, would suggest the economy in the United States is entering recession now (Autumn 2021) — even though employment and wage growth figures suggest otherwise.”
So do not be excited by the fact that unemployment numbers are going down a bit. That is not the only criterion of a healthy economy.
When there has been direct government interference with the labor market, the numbers cannot be considered completely accurate since the interference basically produces unnatural numbers.
It just takes a moment of looking at the broader picture to see that the U.S. economy is not in good health. Even though CNN is reporting on America’s recovery and showing that nearly all states are back to pre-pandemic levels of economic activity, many are overlooking the fact that there are still labor shortages, the supply chains are struggling, and inflation is at a 30-year high.
2008’s recession was bad, but this could be worse. And unlike 2008, when there were plenty of workers but a shortage of jobs, now the situation is the exact opposite.
“Pent up savings, trillions of dollars in federal stimulus and rapidly rising wages mean that there is plenty of demand. But companies are struggling to recruit workers and source the raw materials needed to meet it,” the U.K. Daily Mail reported Monday.
What is our president going to do about all of this?
So far, Biden has only talked about how great the economy is doing since he became president.
“Over the last three months, we’ve been creating, on average, 750,000 new jobs per month. Our economy is growing at the fastest rate we’ve seen in nearly 40 years,” Biden said last month, according to an official White House transcript of his comments. “Our recovery is unique in the world. We’re the only developed country in the world whose economy is now bigger than it was before the pandemic.”
And apparently, Biden thinks his “Build Back Better” plan will magically fix everything with its $3.5 trillion price tag. But how is free community college, universal preschool and 12 weeks of paid family leave going to pull us out of a recession? A Wall Street Journal Op-Ed called it “Joe Biden’s Economic Fantasy World.”
Biden’s boasting that the economy is coming back shows he does not seem to understand what the problem really is. And if he can’t see or understand the problem, there is no chance of his fixing it. Instead, Biden is fiddling on his roof while the economy burns around him.
So buckle up for another recession. Don’t be fooled by Biden or by faulty economic understanding into thinking the U.S. is about to enter a golden economic age. There are rough waters ahead.
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