Recession 101, or Why is the Government Enacting a Tax Rebate?

Don't let the media and other ignorant people tell you we're in a recession. We're not. But we could be soon, if we're not careful.

The United States economy is still expanding - it's a very small expansion, but it's an expansion. Yes, it could get worse, and yes, that could mean a recession. By definition, a recession is two consecutive quarters (about 6 months) of declining GDP.

The Bureau of Labor and Statistics (http://www.bea.gov) states that real GDP rose in 2007 by 2.2 percent. This is a slight drop from 2006, when real GDP rose 2.9 percent. What does this mean? Well, GDP (gross domestic product) is the sum total of goods and services produced in the US in one year, as a dollar value. All that "real" GDP means is that they have taken inflation into account so you can compare dollar values from year to year. It would be virtually impossible to compare 2007 GDP with, say, 1980 GDP if economists didn't take inflation into account.

As long as the real GDP is in positive percentages, there is no recession.

There is, of course, no question that the economy is slowing down. One of the reasons President Bush and Congress are suggesting tax relief is so that we'll all run out and buy a new big screen television to make sure that those companies make more (raising GDP!), and more people keep jobs, so that we don't fall into a recession. Production is down, but not stopped, and definitely not in the negatives.

Housing starts are down - this is a number that is looked at to see how many homes are being built, and generally shows how much confidence people have in the economy in general. According to the National Association of Home Builders (http://www.nahb.org), housing starts are down 14.2 percent from last year at this time. People in general are concerned about the economy, and I'm sure the sub-prime lending scandal has added to this. The increase in foreclosures probably has, too (Associated Press states that home forclosures are up 79 percent from 2006) - also part of the sub-prime lending scandal, but also because some people can't afford their house payments, perhaps to the slowdown in the economy. But...this does not constitute a recession.

A recent article on Associated Content stated that part of the reason the author felt we were in a recession was because unemployment was at 5 percent. The Bureau of Labor and Statistics confirms this (htttp://www.bls.gov) - in December 2007, unemployment did rise 0.3 of a percent to 5 percent of the U.S. population. Five percent is actually a very healthy unemployment rate - we need jobs that are open, so people can move around to different areas of the country, so that high school and college grads will find jobs. When that unemployment number goes above 6 percent, the government starts to get a little cranky and wondering what to do - but 5 percent unemployment does not constitute a recession.

Other things that don't cause recessions: gas prices (most oil in the world is controlled by a cartel...look up "cartel" sometime - they are not in it to save us money), value of the dollar overseas, whether we are running on a deficit or surplus with the national budget, Hurricane Katrina, interest rates, 9-11, bank loans and profits, or whether the president sneezed today.

One of the hardest things about thinking economically is to take emotion out of the analysis. There's an old joke (and there aren't many jokes in economic circles!) - it's a recession when your friend loses their job, but a depression when you lose yours. Although there can be no denying that the economy is slowing down, that's why they call it a "business cycle" - because it's going to happen, again and again, and there is not a lot we can do about small slow-downs and pick-ups in GDP. Do I think 9-11 caused this? No. Do I think George Bush caused this? No. Am I going to look back and blame Bill Clinton? No. I'm also not going to blame credit card companies, global warming, small children, or taxes. A slowdown in the economy is going to happen.

What's important is to make sure the news reports and other media don't turn a slow-down into a self-fulfilling prophecy - a full-blown recession. How could this happen? Fear. It's scary to think of falling into a recession again. If people fear that they will lose their jobs, or their life savings, or pay higher prices because of the nasty recession we're supposedly in...it could make the slow-down worse and cause a recession. Crazy how that happens, hey?

If we think before we act, and get the information from the source rather than the media and people who don't know what they're talking about...well, then perhaps we get what we deserve. But that's true in all walks of life.

So, if the tax rebate goes through - take it and ... do what is best for you and your family. We haven't figured out what we'll do with ours yet - but then again, it's not through Congress yet, either.