Concepts and Problems in Macroeconomics

Gross Domestic Product is not always a perfect indicator of recession. This statement has always been a source of heated debates in the scholarly world of Economics. Others say that GDP has many flaws; that the current time is not the best quarter for raw growth whether in housing, oil and commodity inflation, or consumer durables. Others point out that the pace of the economy's growth (either acceleration or deceleration) can be an indicator of the phase that we are currently in. Some economists even go all the way in saying that the Federal Reserve (FED) system is yet to create the "cloud nine" that will define all possibilities of linear growth economies. Until then, the indicators of the start or the end of every phase in the business cycle can be very useful and that the National Bureau of Economic Research (NBER) will have to use the available resources in promoting a greater understanding of how the economy runs.

However the different economic sectors deal with the signs of recession, one thing remains, the NBER will always have the power, will always be an economic media that the majority refers to. This is what we are going to address in this paper. At the end of this investigation, we shall be knowledgeable of the following facts:

• General definition of recession

• The reason why NBER opted to use a "different" definition of recession

• The peculiarity of the current recession

• Bernanke's view on FED and the recession

• Martin Feldstein's view of the causes of the economic recession

FED, NBER and the Recession

Generally, an economic recession can be defined as a noteworthy decline in the spread of activities across the economy (thus, it can be seen in employment, industrial production, real income and wholesale-retail businesses) which lasts longer than a few months. Technically, a recession is indicated by two consecutive quarters of negative economic growth as measured and defined through a nation's Gross Domestic Product (GDP).

In spite of the aforementioned definition however, the National Bureau of Economic Research (NBER) is likely to use a different definition. According to the NBER, the rule-of-thumb of two consecutive quarters of negative growth in GDP is not official. Rather, in most cases, it is more or less certain that the rate of GDP growth will continue to decline until the fourth quarter. Therefore, the NBER follows their own standards of choosing the dates of business-cycle turning points to assure continuity of the order of events. Also, they tend to emphasize on economy-wide measures (not confined in one sector) of economic activities. NBER regards real GDP as the sole best measure of economic activities, thus, it puts weight on the estimated reports of real GDP as issued by the Bureau of Economic Analysis (BEA) of the United States Department of Commerce. Since the BEA's real GDP estimates are only available quarterly, the NBER refers to the different monthly indicators so they can determine the months of peaks.

Many economic groups on the other hand find something unusual about the current economic recession. The data provided are as follows: industrial production fell to 6% (average for the past six recessions is 4.6%), employment declined to only 0.7% (66% of the average), and decline in goods prices (deflation); all of these happened while real incomes continue to rise. It seems like the figures are contradictory with each other and this makes the current recession peculiar and rather difficult to analyze.

Ben Bernanke of Princeton University stated that the FED cannot end the recession by itself. This is due to the decline in the business expectations about the profitability of technologies such as the Internet, causing a decline in the investments. Without the present events (terrorist attacks), the economy might just have skirted the border of recession.

On the contrary, Martin Feldstein, the president of NBER, pointed a finger on the sky-rocketing prices of energy and the tightening of FED as the reasons behind the current economic recession.

Conclusion

The real GDP is not reported in an appropriate manner; i.e. it sometimes lagged and often changed while being reported; and since NBER relies on this particular information, citizens will not officially know that they are in recession until they've passed that stage.

This could only mean that the committees in-charged in dealing with recession schedules are not concerned with forecasting but rather to get the precise date of recession so that researchers may attempt to find a way on how to reduce business cycles. Thus, at the moment, it is but difficult to look upon and trust any form of media that releases recession information.