NBER Redefines "Recession"

The National Bureau of Economic Research (NBER) - which is a private organization, not a governmental entity - has just declared that the US has "officially" been in a recession since December 2007. I don't want to minimize in any way that many families have been struggling for some time, but this pronouncement by NBER makes no sense from a technical standpoint. In addition to making me question NBER's motive for this pronouncement, I think it points out a larger problem.

What NBER has done here is nothing short of redefining the term "recession". Again, this technicality will seem moot to someone who has experienced a layoff (I will point out that some states have been experiencing recessions for some time, but NBER is declaring a year-old national recession here), but there are reasons that we define things. A recession is officially defined as two consecutive quarters (six months) of falling Gross Domestic Product (GDP), after compensating for inflation. GDP is the dollar value of all new, final (consumer-ready) goods and services produced in the US - when this number falls, it means that the economy is producing less, which means declining employment, which in turn means families' incomes go down.

However, according to official federal government statistics, Real GDP grew appreciably during the first two quarters of 2008, and only began declining in the third quarter of the year. Fourth quarter numbers of course will not be known for certain until the beginning of the year, but they are likely to show further decline, at which point the economy can officially (for real) be declared in a recession. NBER, by their own admission, have sidestepped this definition - note that their claim is not that we were going into a recession or in danger of doing so, but that we have been in one for the past year. Again, I wonder why they would find it necessary to do this.

The larger problem I see here is that, given the importance of certainty and confidence to the behavior of consumers and investors, the most important players in the national economy, it is possible to deepen and even prolong our current downturn by "talking down" the economy. I'm certainly not suggesting that we practice denial when the indicators tell us that trouble is looming, but the hyperbole framing the current economic downturn in terms of the Great Depression (as some politicians have been doing, by the way, since well before December 2007, and almost everyone in media and government is doing now), is counterproductive to any attempts to stabilize the economy. It seems to me that NBER's pronouncement is tantamount to this by making the recession that we are probably now experiencing appear deeper and more protracted than it actually so far is.