[OPE] Goldman Sachs: fighting the recession, by envisioning your own upturn

In the punditry stakes:

Aug. 19 (Bloomberg) -- The worst U.S. recession since the 1930s may already
be over, according to Edward McKelvey, a senior economist at Goldman Sachs
Group Inc. in New York. (...) A gain in gross domestic product this quarter
and sustained increases in total sales adjusted for inflation, together with
further increases in production, would help cement the verdict, McKelvey
said. (...) The job market, which is likely to deteriorate further, is the
one component that may not confirm the contraction is over, McKelvey said.
For that reason, McKelvey said the task of predicting when recessions begin
and end is "counterproductive" since most Americans will continue to feel
glum as the jobless rate climbs and payrolls fall. Calling the end of the
downturn comes "with considerable misunderstanding -- bordering on distrust
and disdain -- from those who are experiencing recession by their own
definition at first hand," he said. "This is not to say that identifying
recessions is pointless, but merely to suggest that a more natural
 criterion" for determining the length of contractions would be "a period
during which unemployment rises significantly," McKelvey said.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aLj7cQEMC_O0

In other words, quarterly real GDP is likely to rise a notch again, while
unemployment continues to rise as well, although unemployment rises somewhat
more slowly than it did before, therefore punctuating the end of the
recession.

It's sort of like, if you have ten lifeboats that can fit ten people each,
and you have 120 people, then it's tough luck for 20 people - at best, they
could try hold on to one side of the boat, or maybe Jesus has an answer.
But, the argument goes, look at it this way - at least 100 good people have
been saved from the sinking ship, that's an achievement. If you are one of
the 20 people that missed out, it might of course look not an achievement,
but a class (or racial) prejudice.

Well, anyway, the limitations of the concept of GDP as a measure of total
economic activity, on which I have commented in the past, are becoming more
apparent now.

My own hunch is that any significant upturn of US GDP would, statistically
speaking, be driven mainly by net export growth, plus reduced imports plus
government activity, rather than a very significant expansion in private
sector domestic sales (except possibly durables), since the so-called
"credit crunch" persists among consumers, and it makes this recession
different from preceding ones. The US has promoted the concept of
"export-led development" for some four decades at least, and it looks like
that policy could come into use at home now. "Globalisation is coming home",
so to speak; after the US trying to recreate the world after its own image,
the world's image is visited upon the US.

The main thing you can get out of this, is that Leftists prophesying a total
economic meltdown, a catastrophic collapse of the whole US economy, or an
Armageddon were wrong, as I said before, though (1) official unemployment in
the labour force may well rise to 10% or even somewhat higher (a lot of
people also dropped out of the labour force altogether, and therefore are no
longer counted as unemployed) and (2) GDP growth rates remain rather
lacklustre. It is just that for a certain group of people, the economy has
really collapsed, but that is a different story, and it is a story which
will continue for quite some time, as more people fall out of the boat.

J.

Hey hey I saved the world today
Everybody's happy now
The bad things gone away
And everybody's happy now
The good things here to stay
Please let it stay

Theres a million mouths to feed
And I've got everything I need
I'm breathing
And theres a hurting thing inside
But I've got everything to hide
I'm grieving

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Received on Wed Aug 19 15:19:30 2009