Is America in a Recession? Part 1


Observations about economics.

The right wing is currently salivating at the mouth trying to attack President Biden because America has had two subsequent quarters with negative GDP growth (-1.6% and -0.9% respectively). While that is the technical definition of an economic recession historically used by the National Bureau of Economic Research, it is not necessarily clear that the U.S. economy is in extremis, especially since the country added a whopping 528,000 jobs last month. Surely the nearly $21 trillion U.S. economy is big and complicated enough to warrant a more nuanced answer to describe the health of the economy.

To use an extreme example, suppose a tsunami destroyed Los Angeles and the national economy shrank from the loss of a major metropolitan city. Under this scenario, would it really make sense for the opposition party to accuse the party in power for economic malfeasance simply because the country’s GDP shrank? What about in the year immediately following the greatest public health crisis in a century?

What about if it that same opposition party’s previous president who spent the last year of his presidency pretending that the global pandemic would magically disappear and allowed his party to moronically politicize every solution to the pandemic like wearing masks, getting COVID tested, not holding super-spreader events, and even getting the vaccines that his own administration helped create?

What if it is super easy to imagine an alternate reality where the opposition party’s president took the crisis seriously, a million Americans did not die, global supply chains were not colossally disrupted, and trillions of dollars were not spent to support tens of thousands of businesses and tens of millions of Americans safely through the crisis?

But this is not just some partisan defense of Joe Biden. This is instead a bit of a deep dive overview of why the health of the economy is far more complicated than partisan hacks, pundits, and commentators would ever let on, and why we ought to think beyond the simplistic economic information the media often presents.

Let’s dive in by quickly talking about the field of economics itself, which is not nearly as advanced and all-knowing a field as many people or even economists would like to think. Economics is, after all, not a hard science like physics or chemistry, but a social science like history, political science, sociology, psychology, anthropology, etc.

Similar to the hard sciences, social sciences like economics rely on qualitative and qualitative research designs, logical reasoning, and ample use of mathematics and statistical analysis to discover more about the world in their respective corners of scientific inquiry. But because social sciences inherently involve human societies and people’s interactions and relationships within those societies, they have a people problem in that individual people and even entire countries’ actions can be impossible to predict and hard to adequately explain after the fact.

However, unlike most social sciences that revel in the ambiguous complexities of the human experience — such as history and anthropology — the field of economics often tries hard to disregard and explain away significant aspects of human complexity in order to focus more on the many mathematical models and formulas that the field has developed over the decades.

For example, many economic theories are based on the assumption that people are rational, have self-control, are unmoved by purely emotional factors, have full awareness of their exact preferences at all times, and can effectively adapt to dynamic changes in incentives and price changes.

Most economists also assume that if individual people and their individual market interactions are rational, so too must the market interactions of large groups of people be rational. These assumptions convince economists that economies that can be simplified and convincingly analyzed, and that their field can make logical predictions about the future based on these analyses.

But is this that reasonable?

The US economy is both extremely big and complex. The global economy is even bigger and even more complex at an estimated $80+ trillion. Modern 21st century economies involving literally countless market interactions between tens of millions of businesses and billions of people might simply be too complicated to fully comprehend with anywhere near 100% certainty about what is going on currently and what might happen in the future. And questioning the predictive power of economists’ sure feels even less unreasonable when you question the underlining assumptions that people are rational, unemotional beings impervious to passion and outlandish ideological beliefs.

To be fair to the field of economics, though, there are sub-fields of economics like behavioral economics actively exploring and attempting to deal with people’s irrationality and figuring out what that irrationality means for the field.

For now, though, it is enough to reiterate that economics is a field slightly more based on people and their mental, social, and psychological quirks than on fundamental and indisputable facts about reality. This of course helps explains many things such as famed economist and “greatest central banker who ever lived” Alan Greenspan confessing to Congress that he was “shocked” that the 2007–8 market crash could possibly happen and why big economic calamities always seem to come as a surprise.

So, what’s the point?

In part two, I will detail why the complexity of the economy and trying to analyze it is far more complicated that many political pundits acknowledge. The “health” of any economy, let alone one as big as America’s can be analyzed in any number of different ways using literally hundreds of different measurements and indicators which obviously allows pundits to cherry-pick whatever evidence they need to serve a particular agenda or point of view. Also, multiple indicators can also be simultaneously good or bad depending on your point of view.