Up until three weeks ago, a recession was defined as a contraction in the economy lasting two consecutive quarters and inflation was defined as too much money chasing too few goods.
Economists, Presidents, Federal Reserve Chairmen, academics, and legislative leaders have held for decades that you do not raise taxes in a recession, and you don’t throw new spending on top of runaway inflation. It is not a partisan thing – Obama knew it and said so.
Three weeks ago, Sen. Joe Manchin reiterated his understanding of those two principles when he refused to go along with the third attempt to force “Build Back Better” through Congress before the Democrats lose their majority in the House this fall. The spending is inflationary and tax increases recessionary.
This week, three things happened that are not unrelated.
First, the administration sent out its economic advisors in an absurd media campaign to re-define “recession”; the day before the official GDP print was announced, Wikipedia changed its definition and locked that page. Twitter was bot-swarmed to give the impression of unanimity.
Second, the Biden coms team touted the recent slight easing of retail gasoline prices, implying that inflation was subsiding, the corner had been turned.
Third, Joe Manchin reversed himself and signed onto the same tax and spend bill he had opposed for nearly a year, cynically renamed and rebranded as an anti-inflation bill to give him cover – Build Back Blather.
It now seems pretty clear what the subject of those “intense” behind the scenes negotiations were: scripting the flip to save some Democrat Senate seats in peril. No surprise there.
You can change words, but not numbers. The energy industry relies on economic forecasts to plan future production, distribution, and inventory levels of crude oil and refined gasoline.
They do so because there is a tight correlation between the “P” in GDP and the consumption of gasoline – we drive to work, to shop, to meet medical appointments, to dine out, to vacation, to attend concerts and shows and theme parks, to go boating and trail-riding. We spend money at our destinations.
The same correlation works in reverse; gasoline consumption is a reliable indicator of a growing or shrinking economy, a proxy. The U.S. Energy Administration publishes weekly data on price, production, and consumption of refined gasolines in all blends by region – it’s a two-minute Google search.
From November of 2020 to July of 2021, the average daily consumption of gasoline rose by 12%, a clear indication of economic growth in the continued recovery from the pandemic lockdown crash that was confirmed by two consecutive quarterly GDP prints.
From November of 2021 to July of 2022, the average daily consumption of gasoline fell by 8%, a clear indication of economic contraction that was confirmed by two consecutive quarterly GDP prints.
And there you go. The industry sector hardest hit (so far) in this recession is overnight lodging…duh.
Anyone can gargle words and spit a lie into the sink. Yesterday’s flash poll found 65% of us aren’t buying recession-not-recession scam. As layoffs continue at 250k per week, the 35% might come around, but maybe not until their number is called – you just never know about these things.
I wrote Thursday that the Presteblog Misery Index — inflation plus U6 unemployment minus economic growth — is now at 17. There are those who claim that inflation is understated, and would be higher by the measure that was changed in 1990. The rationale then was that, for instance, cars are more expensive but better equipped and perform better (gas mileage, reliability, etc.), so direct comparisons are difficult with some products.
Nerenz adds that “business people look at economic data differently than economists do. They have to make forward-looking decisions with consequences, rather than backward looking analysis with no consequences.”