The Biden administration says two straight quarters of negative GDP is much ado about nothing. Like accusations of Hero’s lost chastity in Shakespeare’s play, Biden’s economy is falsely accused of being in recession, the president’s spokespeople say.
Biden’s defenders in the media concur. The Hill informs us that two straight quarters of negative GDP defines a recession in many countries but, contrary to public opinion, not
in the United States. Here, there is no recession until the National Bureau of Economic Research’s (NBER) Business Cycle Dating Committee – the “experts” – declare one.
The committee looks at a broad range of economic indicators to determine whether the economy is in recession. While declining GDP is one factor, it is not the only factor. And the chief reason the NBER has not declared a recession, according to the Biden administration and others, is the “red hot jobs
Nobel Laureate Paul Krugman helpfully tweeted a chart showing the relative number of jobs “added” to the economy during the presidencies of Presidents Trump and Biden.
It is true that unemployment is near historic, pre-pandemic lows at 3.6%. And although that doesn’t count the vast number of people who have left the workforce due to retirement or discouragement, the administration can still point to over 2.7 million jobs created in 2022, according to the BLS
But arguing there is no recession because new jobs are being created rather misses the point.
Jobs are not an end in itself. The purpose of creating jobs is to produce products. One would only want to create more jobs if it would lead to producing more products. Creating more jobs to produce the same or less products wastes scarce resources.
Just imagine a manager triumphantly reporting to the owner of a company that, although production
decreased in the last two quarters, the lower output was accompanied by higher payroll costs. He’d be fired immediately; perhaps referred for a mental health evaluation.
What makes a company profitable is to satisfy demand for its product with as few employees and other costs as possible. The wealth of an economy is no different. As fewer employees are needed to produce each product, more are available to produce others.
Not only does this contribute to
greater wealth for the economy as a whole, but it also represents higher worker productivity and thereby higher wages.
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