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ECONOMIC ANALYSIS: Recession speculation is wrong way to use brainpower

April 28, 2008

With all the media warnings on the state of the U.S. economy, it is hard to get a good idea what a recession is and what it might mean for Hoosiers.

The formal definition of a recession is two consecutive quarters of negative economic growth. We haven't had even one quarter where real growth dipped below zero, and the weakerthan-usual employment data of the first three months this year won't be enough to pull the economy into a recession. The Federal Reserve has predicted slow, but positive growth for the first quarter, and we'll be getting our fiscal stimulus checks in the middle of the second quarter.

Of course, the recession gurus at the National Bureau of Economic Research have the flexibility to define a recession a bit differently than they have traditionally. So, as they did right after 9/11, they might claim a recession when economic performance falls briefly, but sharply.

Many people feel we are in a recession now, but the data isn't here yet. My recommendation for all you recession-watchers out there is to save your feelings for more important things than the pronouncements of the NBER. Stick to the data and reserve your emotional judgment for enjoying this long-awaited spring.

I try to convey this message to my students here at Ball State University. They are smart kids, but suffer from that common malady of the young-lack of experience. My grad students can remember only one recession, that mild blip in 2001. My freshmen quietly endured that one in elementary school. You really have to be in your mid-40s to have experienced a significant recession as an adult. Even the 1990-1991 recession lasted about as long as most of us infantrymen did without a shower in Desert Storm.

In the end, it isn't the boom-and-bust cycle that holds much sway over our lives. It's the long-term trend of the economy, the regional differences in growth and the types of skills that are needed in a global labor market that determines our economic well-being.

While a recession certainly isn't yet apparent in Indiana, we are experiencing a range of economic effects. Communities with large numbers of workers without 21st century skills have been rocked by regional stagnation or decline. The economic unease that infects many Indiana communities isn't due to the failure of markets or economic policy. We have solid policies, and the outcomes that some of our more beleaguered communities see are the appropriate response of markets. But that's a small part of Indiana's story.

In places where workers have 21st century skills, Indiana is a booming place and our economic policies are among the soundest in the nation. Our business taxes, the bane of new capital formation, are among the nation's lowest, our economic and community development efforts smart, and our transportation infrastructure superb.

So, don't fret about a recession. Spend your time instead making sure your kids, and their friends, get those 21st century skills.



Hicks is director of the Bureau of Business Research at Ball State University. His column appears weekly. He can be reached at bbr@bsu.edu.
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