Many definitions come with ambiguity. Others with a built-in rigidity.
Take the word “recession.”
One definition of that word is “two quarters of negative GDP growth.” In plain English, that means two quarters of “economic decline.” A somewhat different view comes from the National Bureau of Economic Research which now has the last word.
Having defined “recession,” the experts picked a date for the commencement of the recent economic embarrassment. Some say it began in late 2007. Others say the date was sometime in April 2008. It makes no difference. The pain was the same.
Having believed that they could say what a recession was and when it began, they also believed they could declare when it ended. The recession, they concluded, ended in June of 2009.
Believe that, if you will.
More recently, journalists, media commentators and economists have shattered our meager confidence by suggesting that the sky might fall again. None, however, explicitly says “the sky may soon fall again.” What do they say? Their words forecast a possible “double dip recession.”
Reliance on the word “recession has led to the point where the very thought of that word, and its corollary “double dip,” now dominates all market-generated decisions — whether to buy a new HD television, hire more employees, produce more of whatever it is a business produces, buy or sell stocks and bonds and on and on flowing into every crack and crevice of our economy.
A simpler word, one in common usage and where reliance on experts was not the key to understanding, would have served us better.
If instead of “recession,” the economy had been described as being in a “slump,” most folks could have related what they knew to what the experts said. Economists, government spokesman and the media, however, told us that there had been a “recession,” and then they said it was over. We believed them. When the sirens began singing a “double dip” death chant, we believed that, too. The result has been lack of confidence by consumers, uncertainty in the business community and volatility of unbelievable proportions in the securities markets. One day we are asked to believe the economy may be improving. The next that “double dip death” is at the door.
The real skinny is that the economy went into a “slump” sometime, maybe in late 2007 or early 2008 — when is not important —and it’s still in a “slump.”
If a big hitter drops from a .300 batting average to .200, we say he’s in a “slump.” The next time he hits a double, the sports writers don’t write that his “slump” is over. Everyone waits. Will he hit another double? Maybe even a couple of singles? Sports writers don’t speculate on whether the player may have a “double dip slump.” What they write makes no difference about whether he hits or strikes out next time at bat.
What the economists, government leaders and journalists say and put into their columns, however, matters greatly. Their statements have a major impact on our decisions, on how we behave, what and when we buy, if businesses hire and how we invest. The word “recession” and its corollary “double dip” have had too much influence.
Face it. We’re in a slump. We don’t need a technical definition to send us off on fools’ errands when we have twenty-five million under- and unemployed workers, countless homes in foreclosure or candidates for that process, markets that are highly volatile and investors and consumers lacking confidence. It’s like what Justice Potter Stewart said about pornography: you can’t define it, but you “know it when you see it.” The men and women in the streets know we’re in a slump. When we’re out of it, they’ll know it, too.
As Lyndon Johnson put it in 1965: “… fear of a recession can contribute to the fact of a recession.”
Stated differently, words move markets.
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