Who decides if the US is in a recession? Eight White economists you’ve never heard of

Indeed, in the United States, the economy is not widely and officially considered to be in recession until a relatively unknown group of eight economists say so.

There is a distinct lack of racial diversity among the eight members, and the NBER has never had a member who has been a racial minority, according to Gary Hoover, co-chair of the American Economic Association’s committee on the status of minority groups. in the economy. Occupation.

All NBER members are experts in macroeconomics and business cycle research. Each is over 60 years old and they are all associated with prestigious universities. The group includes two women, one of whom is married to another member.

NBER recession designations are used and accepted exclusively by the U.S. government, businesses, investors, and journalists.

I won’t try to define recession, but I know it when I see it

While a recession is typically defined by two consecutive negative quarters of gross domestic product growth, there is no hard and fast rule governing what defines a recession in the United States.

Instead, the Dating Committee sticks to a relatively loose definition that leaves some wiggle room: A recession, they write, “involves a significant decline in economic activity that extends across economy and lasts more than a few months”.

The committee is also taking its time to define the start and end of a recession, making sure to look at data over a long period of time. Designations often come retroactively — meaning the United States could currently be in the middle of a recession without anyone officially acknowledging it before the fact.

For example, inflation is at its highest level in 40 years, the US economy contracted in the first quarter of the year, stock markets are on the verge of their worst half-year performance since 1932 and confidence of consumers fell, but there is no indication. when the committee will meet next and what it will decide.

The group says it is looking in depth at economic indicators – real personal income less transfers, non-farm payroll employment, real personal consumption expenditure, wholesale retail sales adjusted for price changes, employment as measured by the household survey and industrial production. But there is no set rule on what metrics they use in their process or how they are weighted in committee decisions.

The short-lived Covid-induced recession in 2020, for example, had only a quarter of negative growth. But “the committee concluded that the ensuing decline in activity had been so large and so widely diffused throughout the economy that, although it proved to be quite brief, the downturn must have been called a recession”.

With so much attention paid to the state of the economy and so many official sources turning to one group to determine whether the United States has entered a downturn, the NBER has an outsized role in influencing American policy, political and financial decision makers.

“There’s tremendous symbolic value attached to the fact that we’re in a recession,” said Richard Wolff, professor emeritus of economics at the University of Massachusetts, Amherst. “It’s taken seriously on the Hill and by decision makers across the country, it’s important.”

But Wolff finds that even professional economists don’t know where the official recession designation stands. come from: “It’s one of those mysteries that goes unstudied because people have accepted these things as gospel – the decisions just seem to come from above.”

In recent years, however, critics have said the NBER’s recession and expansion decisions fail to take into account the economic circumstances of many underrepresented Americans.

A lack of inclusion

The NBER says the last recession ended in April 2020, but the recovery has been on two fronts, which the Department of Labor called “K-shaped”: high growth for the rich and stagnant for the less well off.

“Analysis of private data from a variety of sources appears to confirm that low-wage workers bore the brunt of the pandemic-induced recession,” they wrote.

The Department of Labor found that while workers earning more than $60,000 had returned to pre-pandemic employment levels in August 2020, employment levels for low-wage workers were still down about 40 %.

Low-wage workers, the Labor Department concluded, would likely feel the impact of long-term income reductions, weakening savings and rising inequality for years to come.

When economists and policymakers seek to study previous recessions, they will use dates that “do not necessarily represent the full breadth of experience in this country,” said Valerie Wilson, director of the Economic Policy Institute’s program on economics. Race, Ethnicity, and Economics as well as President of the National Economic Association. “Greater diversity on the committee will bring perspectives and other insights into how we understand the health of the economy.”

In recent years, policymakers and the Biden administration have pushed to include more diverse thinking in economic analysis.

Janet Yellen, the first female US Treasury Secretary and its first female Fed Chair, argued that the lack of women and minority economists in the Federal Reserve and the federal government is a top priority. This lack of diversity, she says, skews viewpoints and limits topics for discussion.

Increased scrutiny and discussion of representation has centered on the Federal Reserve Board of Governors, on which Lisa Cook became the first black woman to serve last month. But the NBER, which is a private institution that receives government funding and works closely with former, future and current government officials, has largely avoided criticism.

The focus should be more on an organization that “makes important policy decisions,” Wilson said. “They should look beyond the most important numbers,” she said.

The problem of the diversity of economists

The NBER doesn’t have to deal with public scrutiny like the federal government does, so it’s a much more insular community. Those outside of this community know very little about its inner workings, Wilson said — and those who push back are “extremely underrepresented minorities who have less power.”

“I think the economics profession is known to be one of the least diverse professions or disciplines on a number of counts: race, gender, and diversity in schools of thought,” Wilson added.

Breaking through and getting people to consider new frameworks for understanding disparity and inequality is difficult. This creates an unbreakable cycle as seasoned economists lead editorial boards of peer-reviewed journals. Being published in these journals is essential for tenure in universities where the government and organizations like the NBER recruit.

“It’s incestuous,” said Wolff, who attended Harvard University, earned his master’s degree at Stanford and his doctorate in economics at Yale, where he was a classmate of That of Yellen.

“Fundamental issues that should be part of the conversation in our economic system are excluded as if they don’t exist,” Wolff said. “You have a community of former white graduates from the same elite institutions and what they think is important matters. If you think differently, you’re kicked out of the club.”

Wolff said he had benefited greatly from being a “poster boy” of the charmed inner circle of economists he calls an old boy network – but that “somebody has to be the one to say that the emperor is naked”.

The NBER declined to comment on the diversity of its economists, but confirmed that current members of the Business Cycle Dating Committee are Robert Hall of Stanford University; Robert J. Gordon of Northwestern University; James Poterba of MIT; Valerie Ramey of the University of California, San Diego; Christina Romer of the University of California, Berkeley; David Romer of the University of California, Berkeley; James Stock of Harvard University; and Mark W. Watson of Princeton University.

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