Is there a recession? Only the National Bureau of Economic Research can decide

Commerce Department data this week found that the US economy shrank for the second consecutive quarter, sparking a new debate over whether the nation is in a recession.

Negative growth in two consecutive quarters satisfies a common definition of a recession, and is the official way to make such a demand in some countries.

But it’s not in the United States, where a relatively under-the-radar group – the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) – is tasked with making an official call to find out if the country is in a recession.

So what is this group and how does it make its proclamations?

The group within the NBER that actually calls for the recession is the Business Cycle Dating Committee.

It has eight members, who are among the nation’s foremost economists, and who all work in top academic institutions across the country: Stanford’s Robert Hall, Northwestern’s Robert Gordon, James Poterba of the Massachusetts Institute of Technology, Valerie Ramey of the University of California-San Diego, Christina Romer of UC-Berkeley, David Romer of UC-Berkeley, James Stock of Harvard and Mark Watson of Princeton.

Christina Romer served as chairman of the board of economic advisers under President Obama and Poterba is the president of the NBER.

The formal definition of a recession by the NBER is broad. According to its FAQ page, the traditional definition of the NBER is “a significant decline in economic activity spread across the economy and lasting more than a few months.”

Consider the depth, extent, and duration of the decline in economic activity. Although the committee’s view is that each “must be met individually to some degree, the extreme conditions revealed by one criterion may partially offset weaker indications from another.”

Economists say the NBER looks at many different indicators to ask if the economy is in recession.

“It actually looks at a wide variety of economic indicators to get that designation,” said Alex Durante, an economist with the Tax Foundation’s think tank. “They are looking at employment, personal income, durable goods, housing permits, so GDP is certainly part of it, but they are also looking at other indicators”.

Employment is a crucial factor in analyzing today’s economy. The job market in the United States is hot, even though the Commerce Department found that the economy has shrunk in the past two quarters.

The White House, which has rejected the idea that there is a recession, pointed out that unemployment is at a historically low rate of 3.6%.

The panel found that a recession occurred in April 2020, after much of the US economy closed at the start of the coronavirus pandemic. It concluded in July 2021 that the recession had lasted two months, the shortest ever recorded in the nation’s history.

Durante said a statement about the current recession – if it really exists – probably won’t arrive until 2023.

“This is obviously difficult for policy makers who want to keep up with these conversations, but usually NBER doesn’t make the designation until after a year,” he said. “This is because they want to make sure they have enough data, but also because the data tends to be revised.”

In fact, it is possible that the Commerce Department data that detected a 0.9 percent economy contraction in the second quarter could be revised. It’s a small enough decrease to fall within the typical margin of error by which the department can correct its first draft predictions.

The origins of the NBER lie in the oil industry.

According to a brief history of the NBER written in 1984 by former vice president of research Solomon Fabricant, the organization traces its history in part to the initiatives carried out in the first part of the 20th century by the fledgling Rockefeller Foundation, the philanthropic body founded the vast oil fortune. made by John D. Rockefeller.

In 1914, Harvard Business School principal Edwin Gay “had taken a leading role, at the request of the executive secretary of the newly formed Rockefeller Foundation, in preparing a memorandum outlining the organization and functions of a similar economic research institute. to the already established Rockefeller Institute for Medical Research. The proposed institute would engage in scientific and impartial investigations “of such magnitude as to be beyond the power of our existing university research facilities,” Fabricant wrote.

Half a century later, the Commerce Department began citing the NBER’s work on the business cycle, which gave it a kind of government legitimacy, according to the Washington Post.

But NBER research has not been immune to controversy.

A recent Guardian investigation found that Alan Krueger, former chairman of the White House Council of Economic Advisors, had been paid $ 100,000 by Uber while writing an article published under the NBER on Uber that claimed he was a creator of good seats in work. Published in 2016 as part of a series of NBER working papers, the disclosure of the payment attracted academic criticism.

An NBER spokesperson said Krueger’s work as a consultant for Uber was clearly disclosed.

The cover of the NBER working document revealed the fact that Alan Krueger was working as a consultant for Uber when the document was written and that his co-author was an employee and shareholder of Uber. The same acknowledgments were included in the version of the document that was published, after the peer review, by the Industrial and Labor Relations Review, “reads the statement sent by email to The Hill.

The NBER is a research institution that receives money from the government but also makes money from investments, according to its website.

“NBER research is supported by grants from government agencies or private foundations, contributions from companies and individuals, and income from NBER’s investment portfolio,” the website states.

He says the groups that contribute most to his research projects are the National Institute of Health, the National Science Foundation, the Social Security Administration, and the Alfred P. Sloan Foundation.

“The NBER conducts research but does not make policy recommendations or advocate based on the research findings,” the group says of itself.

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