New York (CNN Business) Well-known Wall Street economists like Mark Zandi, investment heavyweights like ARK Invest's Cathie Wood, and executives like JPMorgan Chase CEO Jamie Dimon can make all sorts of recession predictions, but their guidance remains solely economic forecasts.
That's because in the United States, the economy is not widely and officially considered to be in a recession until a group of eight relatively unknown economists say so.
Economists working together as the Business Cycle Dates Committee The committee members are selected by and operate under the umbrella of the National Bureau of Economic Research (NBER), a private, non-profit organization. They do not meet on set dates and their deliberations are private. They serve indefinite terms, and final decisions on committee membership are made by the NBER's president, MIT economist James Potaba.
There is a noticeable lack of racial diversity among the eight committee members, and the NBER has never had a racial minority committee member, said Gary Huber, co-chair of the American Economic Association's Committee on the Status of Minority Groups in Economics.
All NBER members are experts in macroeconomics and business cycle research. All are over 60 years old and attend prestigious universities. There are two women in the group, one of whom is married to another member.
The NBER's recession designation is used and accepted exclusively by the U.S. government, businesses, investors, and journalists.
I won't try to define a recession, but I know one when I see one.
A recession is typically defined as two consecutive quarters of negative gross domestic product growth, but there are no hard and fast rules for defining a recession in the United States.
Instead, the Dating Committee has stuck to a flexible and relatively vague definition: A recession, they wrote, is “a substantial decline in economic activity that is widespread throughout the economy and lasts for more than a few months.”
The committee also takes its time in defining when a recession begins and ends, making sure to look at the data over a rough timeline, and because recession designations are often done retroactively, the U.S. could be in the middle of a recession right now but not officially recognized until after the fact.
For example, inflation is at a 40-year high, the U.S. economy contracted in the first quarter of this year, the stock market is on track to post its worst half-year performance since 1932, and consumer confidence has plummeted, yet there is no guidance as to when the committee will next meet or what it will decide.
The committee says it considers a wide range of economic indicators, including real personal income excluding transfer income, nonfarm payrolls, real personal consumption expenditures, wholesale and retail sales adjusted for price changes, employment from the household survey, and industrial production. But there are no set rules about which indicators the committee will use in its process or how much weight those indicators will be given in its decisions.
For example, the short-term economic downturn caused by the COVID-19 pandemic in 2020 The negative growth lasted for one quarter, but “the Committee concluded that the decline in economic activity that followed was so large and widespread across the economy that it should be classified as a recession, even if it was very brief.”
With so much attention focused on the state of the economy and many official agencies looking to one group to determine whether the U.S. has entered a recession, the NBER plays a major role in influencing U.S. political, policy, and financial decision-makers.
“Whether or not we're in a recession has a lot of symbolic value,” said Richard Wolf, professor emeritus of economics at the University of Massachusetts, Amherst. “Congress and policymakers around the country are taking this seriously, and it's important.”
But Wolf found that even professional economists don't know what the official recession designation is. Origin: “This is one of those mysteries that goes uninvestigated because people accept these things as the truth. Judgment just seems to come down from on high.”
But in recent years, critics have said the NBER's determinations of recessions and expansions fail to take into account the economic health of many underrepresented Americans.
Lack of inclusion
The last recession ended in April 2020, according to the NBER, but the recovery was two-pronged and the Labor Department described as “K-shaped” — fast growth for the wealthy and stagnation for the poor.
“Analysis of private sector data from a variety of sources seems to confirm that low-wage workers are bearing the brunt of the pandemic-induced recession,” they wrote.
The Labor Department found that while employment levels for workers making more than $60,000 a year had returned to pre-pandemic levels by August 2020, employment levels for low-wage workers were still down about 40%.
The Department of Labor concluded that low-wage workers are likely to feel the effects of long-term lower incomes, reduced savings and widening inequality for years to come.
When economists and policymakers try to study past recessions, they will use dates that “are not necessarily representative of the full extent of this country's experience,” said Valerie Wilson, director of the Economic Policy Institute's Program on Race, Ethnicity and the Economy and president of the National Economic Association. “Increasing diversity on the committee will bring perspectives and other ideas about how to understand the health of the economy.”
In recent years, policymakers and the Biden administration have been pushing to incorporate more diversity of thought into economic analysis.
Janet Yellen, the first female Treasury Secretary and first female Federal Reserve Chair, has called the lack of female and minority economists at the Federal Reserve and in the federal government a top issue. A lack of diversity distorts perspectives and limits the scope of the debate, she said.
The Federal Reserve's board of governors has come under increasing scrutiny and controversy, with Lisa Cook becoming the first Black woman to serve on the board last month, but the NBER, a private institution that receives funding from the government and works closely with current, former and future government officials, has largely avoided criticism.
Wilson said there should be more focus on organizations that “make the big policy decisions.” “They need to look at more than just the top-line numbers,” she said.
Diversity issues among economists
Because the NBER doesn't have to be in the public eye like the federal government, it's a much more closed community — people outside of that community know little about its inner workings, Wilson says — and those who resist are “a disproportionately underrepresented and underpowered minority.”
“I think economics is notorious for being one of the least diverse professions and disciplines across a number of dimensions: racial, gender, scholastic diversity,” Wilson added.
It's hard to break through this problem and get people to think about new frameworks for understanding disparities and inequality. This creates an almost impossible cycle to break because well-known economists head the editorial boards of peer-reviewed journals, and publishing in these journals is essential to gain tenure at universities that hire government and organizations like the NBER.
“It's incest,” said Wolf, who did his undergraduate studies at Harvard, his master's at Stanford and his doctorate in economics at Yale, where he studied economics at the University of Pennsylvania. Ms. Yellen.
“Our economic system pushes fundamental issues aside as if they don't exist,” Wolf said. “You have a community of older white people who went to the same elite schools, and what they think is important is important. If you think differently, you get kicked out of the club.”
Wolf said he benefits greatly from being the “poster boy” for what he calls the “old boys' network”, an inner circle of fascinating economists, but added that “someone should say the emperor has no clothes”.
The NBER declined to comment on the diversity of its economists but confirmed that the current members of its Business Cycle Dating Committee are Robert Hall of Stanford University, Robert J. Gordon of Northwestern University, James Potava of MIT, Valerie Ramey of University of California, San Diego, Christina Romer of University of California, Berkeley, David Romer of University of California, Berkeley, James Stock of Harvard University, and Mark W. Watson of Princeton University.
