Just because you don’t like the definition

A recession is usually defined as two consecutive quarters of a decrease in real GDP.

A better definition would be two consecutive quarters of a decrease in real GDP per capita, since the economy is only really moving forward it is adding value per person in the economy. Over a short period like two quarters, given the relatively low net population increase over time, it probably doesn’t make much difference.

In the US, the National Bureau of Economic Research sets the definition of recession more broadly to include factors like employment, incomes, production and sales.

There are some who choose different definitions of recession, focussing more on employment and less on real GDP. Depending on the distribution of changes in unemployment, this may “feel” more or less to citizens like a recession that an more abstract decline in real GDP. Positive growth in real GDP can still occur alongside job losses, often termed “jobless growth” which reflects the mix of factors of production between labour and capital (amongst other things).

The problem I have is that many people seem to argue about “whether we’re still in recession” or not, based on different definitions of recession. Since it isn’t universally, precisely defined, arguing over whether we are or not in recession is pointless.

We should stick to deciding what the best policy decisions are to influence the economy, jobs and growth.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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