Is the Recession Really Over? The NBER Seems to Think So…

by Addison Wiggin.

Unless you’ve been buried under a pile of stock market profits over the past 24 hours unable to breathe or reach your TV set, you know the National Bureau of Economic Research (NBER) – the nonprofit body based in Cambridge, Mass., that has been assigning dates to recessions since…1929 – declared the Great Recession over and done with in June 2009.

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Total duration of the Great Recession: 18 months, eclipsing the previous postwar record of 16 months set in 1973-75, and again in 1981-82.

Although, “economic activity is typically below normal in the early stages of an expansion,” navel gazers at the NBER reluctantly admit, “it sometimes remains so well into the expansion.”

How did the ‘recovery’ such as it is come about? Let’s take a look at the nittys:

  • Government spending grew from 20.6% of GDP at the start of the recession to 25.4% in the second quarter of this year, according to the Commerce Department’s Bureau of Economic Analysis
  • Increasing transfer payments – 99-week unemployment benefits, etc. – account for 73% of that growth. At least with the New Deal we got some bridges and dams to show for it. Now Uncle Sam just pays people to sit at home, eat Cheetos and watch Jersey Shore
  • In contrast, gross domestic private investment has shrunk from 17.3% of GDP at the start of the recession to 11.3% last year.

And a good portion of that last figure goes just for repair and maintenance of the existing capital stock. Investment in new factories and equipment – i.e., real growth – represented 40% of gross domestic private investment in 2006.

Last year, capital investment was a mere 3.5%.

“Thus,” concludes Independent Institute scholar Robert Higgs, “net private investment did not simply fall during the recession; it virtually disappeared.”

So much for a productive recovery and worthwhile use of stimulus money. No chance of a double-dip recession after all that paper cash flushed down the toilet.

Addison Wiggin
for The Daily Reckoning

Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He's the creator and editorial director of Agora Financial's daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar, and Why it's Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.

  • jason

    Yes, Obama, Bernanke, Geithner and the rest saved the day. September has been a boom month for the DOW, and the recovery has been on for a while.

  • not_harry

    From what did they save the day, Harry?

  • Erik

    Umm, we were in a bubble. How can you really expect to return to bubble levels straight out of a recession. Frankly I don’t WANT to return to another bubble. “Investment in new factories and equipment – i.e., real growth – represented 40% of gross domestic private investment in 2006″. Right, so they built a ton of new factories, and now they’re using them. They don’t need to build more yet, so they’re waiting. Conveniently, financing costs have gone down so companies are either going to be able to cash flow better if they have sound financials, or the good companies will be able to pick up the pieces (including new factories) from the failed companies. This is how capitalism and business work. At some point that money will have to flow to employees, who’ll go buy new LED tvs, and replace their cars, lawnmowers, clothes, etc. Then the recession will really be over for the Main St. folks. So long as money is being “parked” by the wealthy outside of the economy we’re just in a holding pattern. Money needs to get flowing again. If it’s the gov’t that needs to do so, so be it. Tax the guys who’s incomes went up 200% in the last 2 years (Wall St. bankers, other top 1% of wealthy). People don’t really understand that that number represents. If someone makes $50 MILLION a year, and parks it in non-economic activity (Gold, Savings acct, Caribbean island), it’s not generating further economic activity. The money needs to stay in the system and move around. Poor people HAVE to spend what they get for food, gas, rent, utilities. RICH people can pay all of those and park the other 90% of their income in passive activity.

    Yes, we should be getting bridges and dams and stuff for our stimulus dollars. If the Republicans hadn’t demanded that 1/3 of the “stimulus” bill be tax breaks for the rich we might be better off.

    Remember folks. Obama didn’t create this mess. Bush did, with the assistance of a REPUBLICAN congress. The tax cuts of ’01 and ’03 are THEIR doings. The expiration of those tax cuts this year isn’t Obama’s doing, it’s what the REPUBLICANS wrote into law back in ’01. Blame them, they’re the ones who deserve it. Blame the idiot democrats too for laying down for it, but don’t forget who really put us where we are today.

    Hell, send them ALL home and let’s get some NEW people in Congress who aren’t already corrupted by K St. lobbyists.

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