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Recovery Deniers Just Got Mugged by Reality: Caroline Baum

Sept. 21 (Bloomberg) -- This just in: The recession that started in December 2007 ended in June 2009, according to the official arbiter of the U.S. business cycle.

That will come as a surprise to the 14.9 million unemployed, especially the 6.2 million who have been jobless for 27 weeks or more. It won’t offer encouragement to the 1.1 million discouraged workers who stopped looking for jobs because they don’t think there are any. Nor will it resonate with the 8.9 million who are working part-time for economic reasons -- the primary reason being, the economy stinks.

For the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), designating the trough month for the recession means just one thing: “Any future downturn of the economy would be a new recession,” not a continuation of the old one, according to yesterday’s press release.

While most economists had already identified June 2009 as the trough for the longest and deepest recession since the Great Depression, the NBER committee waited for annual and quarterly revisions to gross domestic product in July and August before making a final determination the recession had ended. The basis for the decision, according to the committee, was “the length and strength of the recovery to date.”

The announcement was hardly a ringing endorsement of that recovery.

“In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity,” according to the NBER press release. “Rather, the committee determined only that the recession ended and a recovery began in that month.”

Prop Indexes

With the addition of Harvard’s James Stock and Princeton’s Mark Watson in 2009, the committee started incorporating the duo’s proprietary indexes -- monthly gross domestic product, monthly gross domestic income and an average of monthly GDP and GDI -- to complement the traditional measures (employment, personal income, sales and industrial production) for determining business cycle dates.

Employment didn’t bottom until December 2009, but the weight of the indicators argued for a June date.

Yesterday’s announcement qualified as a non-event for financial markets, economic forecasters, the Federal Reserve policy makers who are meeting this week -- everyone, in fact, except a handful of business cycle gurus and politicians. For President Barack Obama and members of Congress, the end of the recession will provide new fodder for claims that the stimulus worked (Obama and the Democrats) and that the stimulus failed (Republicans).

Return on Investment

The American Recovery and Reinvestment Act became law in February 2009, shortly after Obama took office. Since that time, the federal government has paid out $529 billion, according to, the website that tracks how the $787 billion is being spent. That includes tax benefits in addition to contracts, grants and loans, and spending on entitlements.

And what do we have to show for that cool half-trillion in spending? Not a robust recovery or a decline in the unemployment rate or a renewal of consumer and business confidence or a bottom in housing. And it’s not for a lack of trying.

The poor return on investment, a metric that matters for business, is less of a consideration for government bureaucrats. One, it’s not their money. Two, there’s more where that came from. So, three, maximizing the return is only important as it affects election prospects.

That’s not to say the U.S. economy wouldn’t have done worse in the short run without monetary stimulus from the Fed and fiscal pump-priming by the federal government. The operative words here are “short run.”

Crowd Control

In the long run (yes, we’re all dead), a dollar spent by the government is a dollar that can’t be allocated by the private sector. It’s not a free lunch, even if it looks that way with the Treasury able to borrow for as little as 0.15 percent.

It’s not that the government is crowding out the private sector by pushing interest rates higher. It’s that one dollar can’t be spent by two entities in two places at one time.

The government filled a void in the Great Depression and again in the Great Recession. The hole was filled and grew into a mogul, then a mountain. It’s going to take a long time to flatten it out again, recession end or not.

But hey, it may create demand for earth-moving equipment and even a job or two for excavators.

(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)

To contact the writer of this column: Caroline Baum in New York at

To contact the editor responsible for this column: James Greiff at

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