Let’s stop talking about a ‘double-dip’ recession

April 17, 2012

Barely a day goes by without some expert publicly worrying whether or not the U.S. economy will fall into a “double-dip” recession. In a CNBC interview last September, investor George Soros said he thought the U.S. was already in one. Earlier this month, the former chief global strategist for Morgan Stanley cited an academic study to argue that “after every financial crisis there’s a long period of much slower growth and in almost every case you get a double dip.” Granted, this is a minority view; most economists are predicting sustained modest growth for the near future. Which makes sense, because while few are thrilled with the pace of comeback, the U.S. economy has grown for 11 consecutive quarters, beginning in mid-2009.

But given that the recovery is approaching its third birthday, how far away from the Great Recession do we need to get before another downturn would be considered not a “second dip” but simply a separate recession instead?

For all its ubiquity, there is no uniform definition of what a “double-dip” recession is; even the origins of the term are hazy. One analyst wrote in a 2010 research note that the term dates from about 1994, when there was concern about sliding back into the 1991 recession. But Safire’s Political Dictionary traces the term to a 1975 BusinessWeek article, attributing it to an unidentified economist in the Ford administration. (Tellingly, the “double dip” the government feared back then did not actually materialize.)

Much of what is meant by “double-dip” recession is intuitively clear: It’s what happens when a recovery is so feeble that, soon enough, an economy sinks back into contraction. It’s the “soon enough” part that no one can agree on. Investopedia defines double dip as “when gross domestic product growth slides back to negative after a quarter or two of positive growth.” If that were the case, fear of a double dip would long ago have subsided.

Of course, an imprecise term need not be useless. There can be good conceptual and historical reasons for associating an economic downturn with one that preceded it. Many Americans naturally think of the Great Depression as a single, sustained economic horror that began with the stock crash of 1929 and didn’t end until the U.S. entered World War Two at the end of 1941. Technically, that’s not true; the U.S. economy actually began growing in 1933 and continued to grow until 1937, when a second dip hit. But the economy had shrunk so severely in the first dip that it never got back to its pre-’29 level by the time it began contracting again – which redeems the popular fusion of two recessions separated by a weak recovery into one Great Depression. Some economists have claimed, more contentiously, that nearly back-to-back recessions in 1980 and 1981-82 qualified as first and second dips.

But that’s not what’s happened this time around. According to the Bureau of Economic Analysis (BEA), the American economy bottomed out in the Great Recession in the second quarter of 2009, when GDP sank to $13.85 trillion, a shrinkage of about 3.9 percent from the then-all-time high a year before of $14.42 trillion. Since then, we’ve far surpassed that previous high-water mark, with current GDP at $15.32 trillion. One way to think about this: The distance between where we are now and the previous high of 2008 is greater than the distance between that 2008 peak and the 2009 trough. Even using what BEA calls “chained 2005 dollars” (in other words, accounting for inflation), current GDP is higher now than it has ever been.

Why, then, do we keep hearing about a double dip, instead of a new recession? Part of the reason seems to be psychological, a sense that weaknesses that were manifest in the Great Recession – slow job growth, too much reliance on Federal Reserve activity – have not been fully addressed. As Alan Levenson, chief economist for T. Rowe Price, told me: “A turnaround always looks like a struggle. Each time we live through a slowdown, we feel like the economy can never grow again.”

The fear of  a double dip is also a potent political weapon. On the right, commentators and politicians seek to stoke fear about a renewed economic downturn as a way of “proving” that Barack Obama’s economic policies have failed; the argument is: “No, he didn’t create the economic crisis, but he made it worse.” On the left, it’s useful to remind Americans of the past economic crisis as a way of repudiating Republican economic policy; the argument is: “We’d better not go down that road again.” In both cases, appealing to fear hits harder because our economic pain still seems so close – not some as-yet-unknown future downturn.

Ironically, as Levenson points out, if the U.S. economy does slow down – which he’s not predicting for 2012 – it will probably have little or nothing to do with fiscal or monetary policy. Rather, it will more likely come from some external shock, such as skyrocketing oil prices or a renewed European meltdown. That probably won’t prevent people from calling it a double dip, but it really is time to put the Great Recession behind us and see any future recession for what it truly is.

PHOTO: U.S. President Barack Obama eats an ice cream at DeWitt Dairy Treats in DeWitt, Iowa, August 16, 2011. REUTERS/Jason Reed


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I think it’s a frappe. It won’t get thick till the end.

Posted by TobyONottoby | Report as abusive

[…] jobs – Chrystia Freeland Let’s stop talking about a “double-dip recession” – James Ledbetter The immigration-averse U.S. – Felix Can the euro omelette be unscrambled? – Hugo Dixon The […]

Posted by Counterparties: Happy Tax Day! You’re not done paying | Felix Salmon | Report as abusive

I would think that the increase in GDP can only be attributed to increased government borrowing that is funding an increase in government spending programmes, which is factored into the GDP calculation. The two are somewhat connected, and it is remiss of you to not include this in your article. It’s unfortunate that with government borrowing/spending muddying the waters, we cannot arrive at a more definitive impact of the GFC.

Posted by GKJ1 | Report as abusive

Couldn’t agree more with this assessment, and what’s hilarious is that since missing the blatant downturns (real estate implosion/CDO maelstrom) everyone and their dog is becoming soothsayer’s. Wild predictions are the call of the day- with no real timing involved since timings are so “hard to predict”.

Sorry folks, come to me with your crystal ball when you’re at least 50% right (which is basically nobody). Until then,stick with the here and now.

Posted by mynamehear2 | Report as abusive

How about defining a double dip as being when an economy slips back into contraction without having surpassed total output at the previous peak.

Seems like a good definition to me.

Posted by Dafydd | Report as abusive

We keep worrying about a double-dip recession because the underlying cause of the first one – global trade imbalances – have gone unaddressed and are as bad as ever. The U.S. is desperately dependent on unsustainable deficit spending to counter the effects of our trade deficit and maintain an illusion of prosperity. It can’t and won’t go on.

Posted by Pete_Murphy | Report as abusive

You should look at your definition of “recovery”. Also, you should stop using any government agency (bureau of anything) as a reference for any statistical data, they all lie, bend, augment, or whatever they can to deceive the American public. Just look at the state of our government….why believe anything they put out.

Posted by niblick3 | Report as abusive

When you cannot score, move the goalposts!

The Government ought to be required to publish what employment and GDP figures would be using the same methods and definitions used in calculating such things in 1931, as the bottom of the Great Depression loomed. It should have to publish these “unadjusted” and “unredefined” numbers alongside our “modern” ones.

We have not come out of the massive economic event that began in the USA in early fall of 2007. Call it a “rocking chair” or call it a “depression”, this has been a horrible experience for most Americans. And it continues. Government numbers simply have the credibility of a Soviet Five Year Plan. Lies, lies, and more lies at higher and higher prices.

Too many well off people cannot comprehend anything at all beyond their front door, or do not care to. So they claim that familiar claim “Happy days are here again!”

Posted by txgadfly | Report as abusive

Ppl who don’t factor in the increase in printed dollars can’t have much of an opinion. The 1937 “dip” BTW was a worse contraction than the first, and caused precisely because of similar measures taken then to reflate. The Depression didn’t end until the forced austerity and huge investment in plant required by WWII.

Posted by REMant | Report as abusive

This is why I started writing The Great Recession Blog last year. I constantly saw the press parroting terms like “recovery” or “end of the recession” that the government was using as if they accepted those terms as fact. I saw it so much, I said, “Someone has to start cutting through all the knots to free up the truth.”

Likewise I see people parroting the government’s declaration that the Great Recession ended in 2009 as if it were a fact — “a recession that officially ended in June 2009 even though nearly all of its symptoms continue through to today. The patient was pronounced well long ago when his heart wasn’t beating, just because his arm went up in rigor mortis.” ( http://thegreatrecession.info/blog/2012/ 04/economic-news-biased-by-relentlessly- rosy-glasses )

–Knave Dave

Posted by KnaveDave | Report as abusive

[…] – This is definitely not a ‘double-dip’ recession, says James Ledbetter. (Reuters) […]

Posted by FT Alphaville » The 6am Cut London | Report as abusive

Ledbetter’s point is valid – double dip seems to be a redundant phrase. However, considering the current state of the world’s finances, I would probably hold out a few more years before attributing any fancy names to anything we are going through. After all, it’s not like we have fixed anything, we’ve just chucked more money at it and hoped for the best.

Posted by GBayes | Report as abusive

Oh please, we’ve not yet struggled above the highwater mark of a few years ago, so if we slide back before we do, it’s a double-dip. Pretty simple concept.


Posted by jbeech | Report as abusive

Some forty years ago when economists began building algorithms for [American] econometric models, it became clear that there is a breakeven point in GDP growth where growth balances the steady increase in labor pool growth related to popultion growth. This breakeven point was estimated to be in the range of three to five percent.

The definition of a recession became two quarters of less than breakeven growth. The definition of a depression was two years of [average] less than breakeven growth.

A year ago, the CBOE developed a rule-of-thumb figure of 2.75%.

Putting this together, we can understand why Paul Krugman, Nobel Laureate in Economics and a number of other bona fide economists (not self-professed pundits with rosy agendas) have been saying for two years now that the United States is in a depression that Krugman calls the Third Depression.

Since the Great Recession started in 2007, it’s clear that the United States has been in a depression for over four years, soon to be five and expected to last at least another five years.

There have been several stories, some carried by the mainstream networks that the current depression may actually be deeper than the Great Depression, especially in light of key statistics that have been deliberately distorted over the years to make the economy seem less sick than it is. Source: United States Labor Department’s Bureau of Labor Statistics (BLS). The “official” unemployment rate is a deliberate distortion, under-reporting under-employment and real unemployment using the definition of people who were working and could still work, but are not rather than the lie that they’re “no longer in the employment pool” and (adding insult to injury) “no longer looking for work”.

Maybe you’ve noticed the slew of articles over the past five years that claim that housing is “turning around” or “bottomed out”, only to find it’s not true. Just in the past month up until yesterday, AP had side-by-side articles that claimed that housing was up with another that said it was down.

What do most people call these kinds of statistics? Lies? Something else?

Posted by ptiffany | Report as abusive