Q&A: Recession, Home Prices, & Regulatory Costs

February 2023 Q&A

Welcome to our February Q&A, which is remarkably coming to you just five days into March. We’re debuting a new weekly series tomorrow called Monday Morning Optimism (free to all subscribers), and on Friday we’ll send out our reaction to the monthly jobs report (also free) as well as Week in Review (paid subscribers only).

Why do economists spend so much time defining a recession? What does defining a period of time as a recession actually do?

Economists are, after all, academics at heart. We also tend to be historians. While defining recessions by start and end dates may not seem particularly important, it’s part of our collective desire to characterize our history.

But there is more to it than that. Knowing the depth and duration of recessions helps us understand what causes them to be shallow and short or deep and protracted. Based on history, we’ve learned that recessions caused by financial crises tend to be extended and deep (e.g., Great Depression, Great Recession). Recessions caused by equity market downturns that don’t lead to systemic failures tend to be shallower and shorter (e.g., 2001 recession). So, it is not purely academic. For instance, if we have another pandemic, recording the history of the 2020 recession might help us understand how the economy will respond in the future and how long economic suffering is likely to last. 

And as always, for those interested (or in need of a natural sedative), here’s the link to how the National Bureau of Economic Research determines the dates of a recession.

As unemployment remains low, and inflation elevated (though decelerating), should we pause all of our recession fears and enjoy the expansion of the economy?