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Source link: http://archive.mises.org/14021/how-useful-is-the-nbers-dating-of-business-cycles/

How Useful Is the NBER’s Dating of Business Cycles?

September 26, 2010 by

On September 20, 2010, the National Bureau of Economic Research (NBER), the institution that dates the peaks and troughs of business cycles, pronounced that the US recession ended on June 2009.

The NBER defines recession in this way:

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.

We suggest that the NBER’s definition does not provide an explanation of what a recession is all about. Instead it describes the various manifestations of a recession. And this is precisely what is wrong with it.

FULL ARTICLE

{ 5 comments }

Walt D. September 26, 2010 at 6:11 pm

Probably as useful as mammary glands on a boar hog.

Seattle September 26, 2010 at 8:26 pm

A sunday Mises Daily!?

Steve Hogan September 26, 2010 at 8:47 pm

The geniuses at the NBER are confusing spending with wealth. Since the government’s spending is included in this meaningless aggregate, their conclusions are equally meaningless.

Why anyone would pay attention to these overpriced nerds is beyond me. In fact, why do we even have an NBER? Give these academics pink slips and have them do something productive for a change.

Sean September 27, 2010 at 1:38 am

So here we go again, I guess, huh? The Fed puts on the brakes, the economy gets even “worse” (heals a tad), and the Fed eventually steps on the gas again. This cannot end well, can it? I mean, the Fed is essentially just making a really shaky economy even shakier each time it hits the accelerator. The economy can only take so much of this, no? What is happening here…the vital parts of the economy succumb, piece by piece, until there is simply insufficient vitality to sustain the populace?

Kerem Tibuk September 27, 2010 at 3:15 am

There are two main problems with the way “they” measure the performance of the economy.

One is the problem of using money prices. And the other is bundling government spending and employment with the private production and private employment.

Measuring the economics activity by the help of money prices has an inherent problem because the measuring rod tends to change all the time. And you can not get out of this predicament by current methods like establishing a basket of goods and services and measuring their change hoping to find “real changes” instead of “nominal changes”.

The first problem with this method is subjectivity of the composition of the basket.

The second problem is that even if you manage to find a basket that gives you a perfect average, 0% growth in money prices is NOT the benchmark. Economy may be growing even if the changes in the money prices of the goods that got produced is zero.

Imagine the auto industry produced cars that are worth 1 million dollars in total. The second year the auto industry may produce cars that are worth again 1 million dollars, but this doesn’t mean there was no growth in the economy. It may be that the auto industry produced more cars, but since the average price of the cars are lower than last year (because the purchasing power of dollars increase) the total dollar price of all the cars are the same.

And if you want to get around this by factoring in the price deflation you still have a problem of measuring the price deflation. Because you would need to assume your conclusion to be able to that and this is contradictory. This is because in an economy there are no constants that you can use as a reference. Everything’s value fluctuates against everything all the time.

And we all know the problem with government spending and employment. If government numbers are as legit as private numbers, this would mean an economy can exist and grow even when nobody is actually producing but just are entries in government ledgers.

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