Who gets to define a recession?

IT’S NOT YOUR IMAGINATION — When adjusted for inflation, worker pay is actually falling, and is lower than before the pandemic — 3.6% lower than if it had followed pre-pandemic trends. Source: Petersen Institute for International Economics, based on data from the U.S. Bureau of Labor Statistics. PHOTO: Slyanight
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Pundits are asking, “Is the economy in recession?” Regardless of definitions, working people are hurting, with pandemic aid programs evaporating and inflation eroding wages. Big business uses the threat of recession to its advantage, pleading for public handouts to bolster profits, or as now, encouraging a downturn in order to neutralize growing worker power by increasing unemployment.

Current conditions in the U.S. economy are not normally found in a recession. Corporate profits are surging, and inflation is at near record levels. Lingering supply-demand imbalances are unique to the pandemic. There’s a tight labor market and workers have gained some leverage in the last 18 months or so due to their own increased militancy.

A recession by any other name. There is no objective definition of an economic “recession,” so it must be one of those things that you “know it if you see it.” The National Bureau of Economic Research “Business Cycle Dating Committee” says that a recession is a “significant decline of economic activity that is spread across the economy and lasts for more than a few months.” The unstated definition however is whether corporate profits are falling.

According to the Bureau of Economic Analysis (BEA), a division of the U.S. Department of Commerce, the “real GDP” (gross domestic product, one measure of economic output) decreased by 0.9% in the second quarter of 2022, following a 1.6% decline in the first quarter. That is two consecutive quarters of decline. But they were preceded by six consecutive quarters of increase in a schizophrenic, unprecedented pandemic-driven economy. It’s hard to know if these short-term statistics represent a real problem or are just an anomaly.

Here is the real stuff. As of June, inflation has driven consumer prices up by 9.1% from a year ago, while wages, although up significantly for some, increased only 5.2% overall. Inflation may be easing, with consumer prices no higher in July than June, but it has still caused real wages (wages compared to inflation) to decline.

This is not just a pandemic hangover; real income for most workers has been falling for decades.

And yet the Federal Reserve has raised interest rates 2.25 percentage points in the last six months, from near zero at the beginning of the year. The pretext is that the economy is overheating, so higher interest rates will throw some cold water on it. The problem with this storyline is that the causes of inflation are supply-demand mismatches and prolonged factory shutdowns in key manufacturing regions left over from the pandemic, global events such as the Russian invasion of Ukraine, natural disasters that disrupted production, and price gouging by corporations. Raising interest rates won’t impact any of these problems.

What it will do is further drain an already beleaguered working class by increasing the cost of credit card balances, mortgages, and auto loans. As if buying a house wasn’t already unattainable for most.

Cutting to the chase. Help isn’t “on the way” for U.S. workers (or those anywhere for that matter), and conditions are only getting worse. Capitalists are giddy about interest rate hikes slowing the economy, increasing unemployment, dampening wage growth and, most importantly, undercutting any leverage the working class has gained in the last few years. The idea that U.S. labor, less than 11% of which is unionized, will continue to push back on capitalists is simply unacceptable to them.

A leaked internal memo from a Bank of America head of economic research stated this in stark, but clinical, terms. Among other nefarious things, it said the bank hoped that unemployment would rise, so that business could return to its idea of “normal,” and praised the Fed for finally supporting this cause with interest rate hikes. Whether those who create all the wealth — workers — will go along with this game plan, or continue to be “uppity” remains to be seen.

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