What Does Recession Mean? It Means Economic Suffering

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You must have noticed that a minor debate over semantics in the media since last Friday's devastating employment report. Lost were 80,000 jobs in March. The unemployment rate rose. Is it technically a recession? Does language matter?

What to remember about the silly debate over the nomenclature is that recession affects most of us. Here's the upshot, and I will repeat it: It is entirely possible that the median American wage in 2010 will be what it was in 1995 or 1996.

Recession means a general decline in the national income (GDP), which includes wages, salaries, profits, interest and rental income shrink.

It is always accompanied by a rise in unemployment. So what? So half a percent of the population loses their jobs, or maybe one percent or even two percent. That leaves 98 percent or so in good shape.

But focusing on unemployment rates confuses matters. It is only an indicator, not the sum and substance of all the pain in the economy. There will be more lost jobs, it will be hard to find new ones, especially jobs that pay the same as the ones lost. And nowadays, when people lose jobs it also means lost health insurance and pension benefits that are seldom regained.

Here's the gist of it. Even for those who retrain jobs, however, recession means salary cuts, no raises or skimpy raises, even as one's rent, college tuition or health bills remain the same or increase. Recession means falling profits for many if not MOST businesses. It means many more bankruptcies. It means dried up opportunities to start new business or launch new products. It means stalling innovation in general. It means reduced tax revenue for government.

What worries me most is that this recession has arrived after a recovery and expansion in which workers were left out. Average wages barely rose while profits soared and productivity increased. Family income is up only slightly and largely because the spouse is working. Now wages are going to fall even before they got a chance to rise. So workers are starting in a hole. They should be making five to ten percent more now than they did at the start of the decade. Average wages will probably bottom out around their level in themed-1990s.

Each recession is unhappy in similar ways and in its own way. This recession is being led by rapidly declining house prices, which is pretty unusual. Many will lose their houses, many more will be unable to refinance to meet rising mortgage costs or pay the bills, whether a new kitchen table or the child's college education. Then it spreads to jobs, wages, business profits, R&D, and so on.

Here are a few particular worries about this 2008 recession, even apart from the credit crisis. It is also unlikely that, when we pull out of the recession, jobs or wages will bounce back rapidly. The nature of recoveries seems to have changed. Job and wage recovery will be slow. So the worker relief will be postponed an especially long time. It is entirely possible that the median American wage in 2010 will be what it was in 1995 or 1996.

Then, of course, there is the credit crisis. No one knows where it will end because the vast web of risky and weakly collateralized loans is simply unknown. And consumers will not be able to borrow their way out of this recession, as they had in the past, because of low home values and hesitant banks.

Oh, yes, we're definitely in recession. The technical definition is that GDP, the nations' total income, declines for two consecutive calendar quarters. That, technically speaking, hasn't happened yet. But recession has a bigger and "badder" meaning then that. We are deep into one.

These concerns make warnings about inflation from people like the head of the Dallas Fed, Richard Fisher, almost laughable. There are inflationary issues, some of them the consequence of goods news. The lower dollar has energized American manufacturing by making exports cheaper. A lower dollar usually frightens the inflation warriors. The banking system seems to have calmed down since the Bear Stearns purchase.

So, yes, we may engender a little more inflation down the road, if we're lucky enough to recover quickly. The alternative is far more frightening. It would be nice to have a unidimensional view of the economy -- stanch inflation at all costs because it is the only variable that truly matters. It would also be wrong.

Meantime, Congress should get to work on that plan of Barney Frank's and Christopher Dodd's to undergird the bad mortgages. And it should prepare a second stimulus package as well, as Speaker Pelosi announced, but one with some long-term investment in infrastructure as well as unemployment insurance extensions.

If this recession is tamed, it will be because Congress and the Fed moved rapidly. Bush climbed aboard the house stimulus package, to his credit. But now he is dragging his feet.