What is a Recession, and Why Are People Talking About the Next One?

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The New York Times – Niraj Chokshi 

Published: December 17th, 2018

Difficulty rating

Rating: 3.5 out of 5.

Credibility rating

Rating: 5 out of 5.

Preview

The following article examines the phenomenon of recessions in light of 2018 forecasts that  were predicting the onset of another economic downturn. The author provides varying definitions of a recession and investigates the reasons why experts believed another one was coming.  

Author

Niraj Chokshi is a Business Reporter at the New York Times. His previous work includes a position at the  Washington Post where he covered politics and policy in the states. He graduated from Bates College with a B.A. in  Psychology. 

Sources

• National Bureau of Economic Research 

• Betsey Stevenson – Professor of Economics at the University of Michigan and former member of the White  House Council of Economic Advisors 

• Economic Letter – Research from Federal Reserve Bank of San Francisco 

• Tara Sinclair – Professor of Economics at George Washington University 

Analysis of Potential Bias

Opinions are provided for both sides of the discussed arguments. For example, Chokshi mentions the argument that  the nation is long overdue for its next recession, but also provides a counter argument by experts who suggest that  economic recoveries do not die of old age. The author is careful to provide both broad and narrow definitions of  what a recession is and includes a list of various factors used to predict one. This article uses the opinions of  economic experts to provide meaningful answers to several questions about recessions.

Article Decryption

Despite a seemingly healthy economy, chief executives at a recent Yale University summit estimate that  half of the United States could be in a recession by the end of the month. For a clearer understanding of  what a recession is, Chokshi explains that a recession occurs when the economy is shrinking. Such a  shrink may be noted when a country’s gross domestic product declines for two consecutive quarters.  According to the National Bureau of Economic Research, a recession may also mean a noticeable decline  in income, employment, production, and sales. The end of a recession may take some time to detect but  typically occurs when growth returns. However, a recession comes in varying degrees of severity and is  not always easy to observe. Economics professor Betsey Stevenson explains that in a slight recession  many people do not experience the labor market problems that ravage other communities.

With various signs pointing towards a healthy economy, it may be difficult to understand why some  experts are predicting an oncoming recession. Chokshi discusses that this fear stems from several  occurrences: a turbulent stock market, slowing growth in the global economy, trade wars, and weakness  in the automotive, agriculture, and construction sectors. It may be true that the recent stock market slide was due to ignored risks taken by Wall Street after having too much confidence in the economy’s health.  Others believe that this long-lasting expansion in the economy will inevitably have to come to a halt.  Another warning sign of an oncoming recession involves the flattening yield curve, which measures the  difference in interest rates between short-term and long-term government bonds. This curve will invert  when short-term rates are higher than long-term rates, representing a lack of long-term confidence.  However, it is not so easy to predict when a recession will occur and how long it will last. 

Recessions occur with little regularity, either occurring back-to-back or decades apart. On average they  have lasted about 11 months, an estimate skewed by the 17-month long Great Recession of 2007. The worst recession occurred in 1929 and is known as the Great Depression. During this time, the value  of goods and services in the United States was estimated to have declined by 27 percent. Some experts  claim this recession lasted 4 years, while others suggest that it ended when the economy mobilized for  World War II. The Great Recession in comparison, lasted nearly two years and saw a decline in GDP by  roughly 4 percent. 

Unfortunately, the unpredictability of the economy means there is little that policymakers can do to  prevent a recession. Dr. Sinclair at George Washington University says that acting on a forecasted  recession with enough time and accuracy has been a historically poor task for government officials. She  also notes that the economy is tamed by psychology and revolves around the spending behavior of  consumers. However, the severity of a recession can be mitigated by the use of both monetary and fiscal  policy. For example, the Federal Reserve could cut interest rates in an attempt to encourage borrowing  and spending. Lawmakers can also respond with tax cuts, increasing spending on unemployment  insurance, or approving new infrastructure projects that will add jobs and boost productivity. To best  prepare for a recession, experts advise saving enough money to cover living expenses in the event you  lose your job. It may also be best to pursue a higher education, since statistics suggest that the  unemployment rate is higher for those without a high school diploma. 

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