The Recession Continues

Economists measure economic recovery using statistics that ignore the reality faced by the majority of the population.

In his book The Drunkard's Walk, Leonard Mlodinow describes the erroneous argument known as the “prosecutor's fallacy.” This occurs when lawyers argue away all circumstantial evidence by noting that the chance of an event actually happening is very slim.

For example, very few men who commit violence against women actually go on to kill their partners. The ratio is one in 2,500. Lawyers have used this statistic to argue for the probable innocence of clients accused of such a crime. However, this ignores the fact that 90 per cent of battered women who are murdered are killed by their abuser. In other words, when murder is involved, we’re talking about the one battered woman who was killed, not the 2,499 who weren’t.

Perhaps we can look at recessions in somewhat the same way; maybe the economist's definition of a recession is the “economist's fallacy", a fallacy of definition more than arithmetic.

Technically speaking, a recession is defined by at least six months (two consecutive quarters) of broad economic decline as measured by losses (negative growth) in Gross Domestic Product. A country's GDP is loosely defined as all expenditures on everything, all investment, plus the value of exports minus imports. Accordingly, if we experience big declines in GDP over six months followed by a minor gain in the seventh month, then some economists pronounce that the recession is over.

An economy can therefore fall over a cliff, grasp onto a fiscal tree branch, pull itself up a few inches and be pronounced to be in recovery. For example, governments could give large amounts of money to the well-off and increase GDP. Increase GDP and you're out of recession. Presto! The fiscal rabbit is pulled out of the government hat.

But for everyone who is not an economist (or a journalist who reports the findings of economists), a recessionary period is generally defined as “bad times,” meaning lower living standards, unemployment, lower spending, and lack of opportunity. And as the present recession proves, the economy can grow while the lives of the great majority of people who inhabit the economy do not improve at all.

This disconnect between the public and the “dismal science” of economics leads to a problem: we tend to think we should be doing more to help the victims of a recession when we are actually in recession and less when we are in recovery. Like the “prosecutor’s fallacy,” the “economist's fallacy” is based on irrelevant factors. It is people's lives that are relevant and lie in the balance.

Over the next year, the number of people receiving welfare will go up. We know this because EI claims have gone way up. And almost all of the people now receiving EI will not qualify for it a year from now because EI is time limited.

As people come off of EI, most will find employment and training or be helped by other people. But even if only a small minority of EI exhaustees need further help through welfare programs, welfare numbers will increase. Meanwhile, economists tell us the irrelevant truth that the recession is over, as proven by the irrelevant fact that EI claims are going down.

Some will no doubt think it strange that the number of victims of the recession is increasing after the recession has been declared over. But that's how it works. That's how it has always worked. That's the way we set the system up to work.

So let's continue to deal with the real recession experienced by everyone else.