Economic times defy an easy label

October 5, 2011
By Michael E. Kanell



This economy is a little like Teflon — labels just won’t stick to it.

All sorts of names have been tossed at the nation’s current financial circumstances, attempts to sum up the situation or illuminate its essence.

There is no consensus — and it looks like there’s not going to be one.

Some call it recession — but that’s not correct, at least not when the economy is growing. On the other hand, calling it a recovery doesn’t feel quite right either — not with hiring anemic, 14 million people looking for work and millions more giving up the search.

“I was talking … to the owner of a business — a small business — and he called it a frustrating economy,” said William W. Beach, director of The Heritage Foundation’s Center for Data Analysis. “Business people don’t call it a slowdown. They don’t call it a speed-up. They don’t call it a recovery. They don’t call it a contraction.”

The economy began shrinking at the end of 2007. A year later, the slide had turned to a free fall in what is often called the Great Recession. The bottom wasn’t reached until mid-2009, when the economy started expanding again.

And that is when the recession ended, according to the National Bureau of Economic Research, semi-official arbiter of such things.

Usually the period after a recession is one of strong growth and there isn’t much confusion about names. After all, with companies hiring and wages rising, who much cares what you call it?

But that’s not what we’ve got. Instead, since the recession we’ve had:

— An economy expanding, albeit weakly

— An abysmal housing market with an epidemic of foreclosures

— Elevated unemployment

— High household debt and weak consumer spending

— Very low short-term interest rates, while gold prices skyrocket amid insecurity and inflation fears.

Finding the right label can promote understanding and calm, said Edwin D. Lawson, psychology professor emeritus at the State University of New York at Fredonia and past president of the American Name Society.

“There may be a name that would be reassuring to the public,” he said. “Of course, the name matters. ”

A combat veteran of World War II, Lawson said he prefers accuracy in his labels. “You can call it a strategic withdrawal, but it’s a retreat.”

To capture it all, sometimes it is useful to choose a euphemism, said another Name Society member, psychologist Herbert Barry III at the University of Pittsburgh. He recalled a discussion with his father about the 1933 “bank holiday” during the depths of the Depression.

“I said they should have called it a ‘suspension of bank payments,’ and he said, ‘They couldn’t call it that because it would have frightened everybody.’”

The word “depression” itself came into vogue because President Herbert Hoover did not want people comparing it to previous financial crises, Barry said. “Hoover didn’t want to call it a panic. He said it’s only a depression.”

Harvard economist Kenneth Rogoff has quarreled even with the term Great Recession — as well as with the idea that it’s over. Comparing this crisis to the 1930s, he wrote in August that the key element is imbalance between lenders and borrowers.

Credit has been contracting and that must continue, so the balance can shift back to borrowers, he said. “A more accurate, if less reassuring, term for the ongoing crisis is the ‘Second Great Contraction.’”

Rogoff argued that choosing the right name is crucial.

“Why argue about semantics? Well, imagine you have pneumonia, but you think it is only a bad cold. You could easily fail to take the right medicine, and you would certainly expect your life to return to normal much faster than is realistic.”

Semantics or not, there are differing takes:

— PepsiCo.’s chief financial officer called it stagflation.

But that word connotes a toxic mix: weak growth, unemployment and inflation. We’ve only got the first two.

— Commentator Richard Posner said it’s a depression.

That seems like an exaggeration — where are the bread lines? Plus, about one in 10 workers are unemployed, not one in four. A few weeks later, economist and columnist Paul Krugman referred to it as a “lesser depression.”

Is that better?

— Non-economists sometimes say we’re in a double-dip recession, but so far it still looks like the economy is growing, albeit weakly.

— Federal Reserve Chairman Ben Bernanke has called it a “moderate recovery.”

In a technical sense he may be right — at least so far. The economy for two years has been expanding, although the word “moderate” may be an overstatement. It’s adding jobs slower than it’s adding new workers. And job growth in August was zero.

“A recovery usually entails higher than average growth to pull the economy up from the recession trough. However, this recovery has lower than average growth,” said Karen Campbell, senior economist at the World Economic Forum. “It is as if the economy is not recovering, but rather merely limping along. Maybe it’s a depressed recovery?”

Many refer to the Great Depression as a benchmark.

University of Texas economist James Galbraith said that even though the economy faces some of the same challenges of the Depression, it has averted the plunging incomes of the 1930s.

Programs like food stamps, unemployment insurance and Medicaid have made up for at least some of the lost paychecks. Meanwhile, consumers are trying to pay down what they owe while their main asset — the home — has been losing value.

“We’ve seen a one-time massive drop in output followed by no expansion,” he said. “So in the aggregate, there’s income. But there is no incentive to invest in new business.

“So it’s debt deflation or it’s a high-income depression,” Galbraith said.

And maybe depression isn’t hyperbole after all, since there is no technical definition, said economist Menzie Chinn of the University of Wisconsin. From 1933 through 1936, the economy grew solidly, yet the period is considered part of the Great Depression, he said.

Chinn sides with Rogoff: “A Second Great Contraction is a pretty good moniker, in my view, if one doesn’t want to call this a depression. Adjustment in the wake of such episodes — a combination of housing bust, financial system crisis and recession — usually entails years and years of slow paced, if not halting, recovery.”

Hmmm. The Great Adjustment?

In the end, it is hard to predict which name will catch on with the general public, said Laurel Sutton, co-founder of San Francisco-based Catchword which advises companies on naming products.

But that doesn’t mean that any name will do.

“Because we are human and language is very important to us, the name you give something is not just a word,” she said. “We form emotional attachments through language, so words are really important.”

Among the economists’ offerings, her favorite is one endorsed by Beach at the Heritage Foundation, who saw a parallel to a scene in the Dr. Seuss book, ‘Oh, the Places You’ll Go.’

“Everybody is hesitating,” Beach said. “If no one is willing to take risks, if banks are not making loans, if households are not willing to put money on credit cards, how is the economy going to move?

“I think we are in The Waiting Place.”

This economy is a little like Teflon — labels just won’t stick to it. All sorts of names have been tossed at the nation’s current financial circumstances, attempts to sum up the situation or illuminate its essence…


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