Professor Bernanke made it official by saying the recession is almost certainly over. He has to be conservative when he speaks because he does not want his comments as Chairman of the Federal Reserve to cause an overreaction. The market celebrated after the news of Bernanke’s revelation even though economists have been making the same point for a number of weeks. GDP in the second half will grow in the US. The fourth quarter improvement may be robust compared to the last two years, perhaps as high as 3%.
Nicolas Sarkozy, the President of France, could not get a seat on the board at the Federal Reserve. His concept of how GDP works is too far from the norm. He recently suggested that economic growth be measured by both classic standards and additional data on “well being.” People may make less money, but if they spend more time having fun on vacation, perhaps the economy is doing well, after a fashion. Sarkozy is not a particularly original thinker. His comments about the quality of life balanced with the quality of the economy were based on work done for him by Nobel Prize-winning economist Joseph Stiglitz.
The theory about how domestic production should be measured based on the French system is yesterday’s news, but it does make a fine book end to Bernanke’s comments. In the chairman’s world, no matter what else happens, a recession has a finite beginning and an end. Unemployment can be 12% and the recession can be over. Bernanke always tempers his comments by acknowledging that the recovery is fragile and the price to be paid in human misery could go on for many quarters. He is not insensitive, just very specific about his choice of words and his role in the system. That role has little to do with promoting happiness among the American people, unless that is an effect of controlling the money supply.
The unfortunate by-product of calling an end to the recession is that it calls an end to some of the vigilance given to problems like wages and the credit problems which plague millions of households across the country. The economic theory is simple: The recession is over, so everything else about the broader world will be back to normal again soon, at least financially.
But, things will not be back to normal soon. Bernanke might better have said that the recession is over but the misery is just starting for most people. Figures show that over 1.5 million Americans will lose unemployment benefits between now and the end of 2009. That number is going to grow early next year, unless Congress extends the amount of time that the government supports people who lose their jobs. There has not been much activity on that front. Congress may fear a popular revolt if it adds more spending programs on top of the healthcare initiative and stimulus package. The voting public may not be mutinous yet, but they are sullen.
In a nutshell, the reason that many citizens mistrust comments by the people who run the Fed or the Treasury or the President’s council of economic advisors is that almost no one feels that anything about the economy has improved. A new Washington Post/ABC poll shows that a great many people do not believe that their economic fortunes have improved since the last survey was done in February during the deepest and darkest part of the recession. That is probably because they don’t see a future that holds anything for them but high mortgage payments on worthless homes, hard work for less money, fewer healthcare benefits, and banks that will not loan a dime even to those with perfect credit scores.
The recession may be over for Bernanke, but for many, many people it is still near its beginning.